Goldman Sachs leads project to tackle collateral crunch

Goldman Sachs is leading a new project aiming to help banks exchange collateral in order to meet tough new rules on margin and central clearing, according to multiple sources.

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Goldman Sachs is leading a new project aiming to help banks exchange collateral in order to meet tough new rules on margin and central clearing, according to multiple sources.

The project, named “Project Colin”, is in the early stages of development, and involves a coalition of Europe’s top investment banks with the aim to create a ‘collateral utility’ that will standardise the bilateral collateral exchange process when mandatory clearing rules kick in for Europe, according to two sources with knowledge of the matter.

As well as Goldman, around six other banks are rumoured to be involved in the project, including J.P. Morgan and Bank of America Merrill Lynch (BAML), says one source. Furthermore at least one market infrastructure and one vendor is said to be in the frame. 

According to one source, the aim is to create a mechanism where the operational and logistical process of exchanging collateral can be standardised.

A spokesperson for Goldman Sachs and J.P. Morgan declined to comment, while a spokesperson for BAML could not be reached for comment at the time of print.

From the second half of this year, clearing members (mostly banks) will be required to begin centralised clearing of interest rate swaps under the European Market Infrastructure Regulation (EMIR).

According to a report from research house Celent in October last year, it found collateral utility models could be the way forward for the financial services industry to cut costs. In its report, it said firms are likely to move away from in-house collateral management towards outsourced, cloud offering, and towards utilities in the long-term.

This will not be the first time the big investment banks put aside their differences for the good of tackling a common enemy.

In September 2013, Goldman Sachs, Credit Suisse, J.P. Morgan and Barclays signed an agreement with the Depositary Trust and Clearing Corporation (DTCC) to create a global reference data platform in order to lower costs. Furthermore, in 2014 Markit launched a KYC utility, which was designed in partnership with Citi, Deutsche Bank, HSBC and Morgan Stanley.

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