Euroclear will create an open global market infrastructure to source and move collateral across borders.
Users of the collateral management provider’s Collateral Highway will be able to move securities from wherever they are held to serve as collateral for access to central bank liquidity, secured transactions such as repos and securities loans, and margins for central counterparties (CCPs) and bilaterally cleared OTC derivative trades.
The Collateral Highway will have multiple collateral entry and exit points. The entry points are where collateral will be sourced from all Euroclear central securities depositories (CSDs), agent banks (BNP Paribas Securities Services is the first to join), clearers and CSDs located in any timezone (the Central Moneymarkets Unit of the Hong Kong Monetary Authority is the first to join). The securities will then be transported to where they are needed as collateral. The Collateral Highway is open to all CCPs, CSDs, central banks, global and local custodians, investment and commercial banks. Custodians, agent banks and CSDs without a collateral management service offering will be able to use the Collateral Highway as their own for their domestic clients.
Saheed Awan, global head of collateral management services at Euroclear said the focus is on two areas – collateral management across silos and collateral optimisation.
He added the fact that securities are kept in a certain locations creates scenarios where the securities held as collateral are often “locked” in a particular timezone or market, reducing collateral management efficiency and securities optimisation for cross-border collateral purposes. “We aim to resolve this problem by providing the infrastructure to move collateral where and when it is needed, no matter where it is held,” he said.
As part of its mission, Euroclear, which manages more than €500 billion of collateral outstanding, has developed open inventory sourcing technology to keep track of the collateral positions deposited by clients in various locations. Whereas Euroclear’s conventional triparty collateral management system sourced securities for collateral held only in Euroclear Bank, it will be able to search and manage virtually all client asset positions and, via the Collateral Highway, move the right collateral to the right collateral taker using automated processes. Euroclear will also monitor, value and substitute securities used as collateral when and if needed during the lifecycle of the transaction, and return the securities to the original place of deposit when they are no longer needed.
Jo Van de Velde, managing director and head of product management at Euroclear, commented that given the amount of collateral required through the new regulation, it is important that the market has a systemic and open solution to maximise collateral availability and mobility across borders 24 hours per day.
Reporting by Janet du Chenne, Global Custodian, an Asset International publication