Improving access to central bank liquidity and expanding its corporate user base will be key objectives for Euroclear’s Collateral Highway this year.
Having unveiled this week strong growth in its collateral management service during 2013, the international central securities depository said it hopes to expand its position with further improvements in 2014.
The value of average daily collateral outstanding on the Collateral Highway – Euroclear’s open global market infrastructure to source and mobilise collateral across borders – reached €787 billion in 2013, up 12% from €700 billion in 2012.
During last year, Euroclear signed up a total of eight central counterparties onto the platform, including LCH.Clearnet and ICE Clear.
While Euroclear has traditionally provided collateral services to the repo market, it has in recent years expanded its offering to provide a much broader pool of collateral to its clients.
Liquidity focus
Outlining plans for the coming year, Olivier de Schaetzen, head of global market products at Euroclear’s commercial division, said efforts to tap central bank liquidity will be particularly important.
“We’ve pioneered our collateral management services with Banque de France which now conducts open market operations with French banks and uses our system to manage all of the securities collateral posted for liquidity. In 2014 it will be vital to bring in more central bank liquidity with greater connectivity.”
Central bank liquidity is core to growth among Euroclear’s financial institutional customers, who are increasingly in need of this additional source of liquidity due to growing demand to secure OTC derivatives trades, driven by regulation such as the Dodd-Frank Act and European Market Infrastructure Regulation, in order to meet their collateral needs.
Last year also saw Euroclear expand the client segments it serves.
“We’ve seen new client segments using the Collateral Highway service,” said de Schaetzen. “Traditionally it was largely investment banks, but over the years this has expanded to commercial banks, pension funds and other institutional investors. More recently we’re seeing corporate treasurers using the highway because they want to secure their liquidity pool.”
In the past, corporate treasurers have been largely dependent on banks to meet their collateral needs, but as banks have moved away from unsecured risk they have increasingly needed to seek alternative third-party solutions, he added.
Euroclear believes that offering collateral aggregation that is diverse, both in terms of assets and geographic coverage, is key to its future growth.
Optimised collateral
As well as growing its liquidity pool, Euroclear is also gearing up to launch a new service for the Collateral Highway in Q1.
“This year, the launch of our collateral optimisation solution in March will be a major milestone. Clients want their assets to work harder and be more efficient and are demanding services that help them get the most out of their securities collateral portfolios,” explains de Schaetzen.
A recent white paper from the Depository Trust and Clearing Corporation, outlining the challenges being faced by market participants seeking collateral, found a rapid increase in demand is making it more difficult to source high-quality collateral. The report suggests that creating more interconnected solutions that can source collateral and enable clients to use it efficiently should be a priority for the industry.