The International Capital Markets Association (ICMA) has secured agreement among three post-trade infrastructure providers to bolster interoperability for tri-party repo settlement.
International central securities depositories (ICSDs) Clearstream and Euroclear, along with clearing house Eurex Clearing, have signed a memorandum of understanding over future co-operation, with the aim of delivering tri-party settlement interoperability by the end of 2015.
The project will enable Eurex Clearing to extend its connected settlement locations for its GC Pooling secured funding market to Euroclear Bank. It already has access to Clearstream Banking as a settlement location.
However, it is expected to be a complicated project to unify the three firm's systems, necessitating more than two years worth of development.
The three firms are currently in the process of developing detailed specifications of how tri-party settlement interoperability will work.
David Hiscock, senior director at the ICMA, said: “Now the hard work really starts and the firms involved will now be doing a lot of work internally to establish which resources they are allocating to the project and the best way to connect with each other.”
Once established, tri-party repo service providers will be more easily able to move collateral between connected settlement locations in Europe. It will help to reduce collateral pool fragmentation and enable banks to provide liquidity to the real economy via the repo markets.
Stefan Lepp, head of global securities financing at Clearstream, said: "In order for the industry to fully benefit from tri-party interoperability between Clearstream and Euroclear, we must also progress with enhancement to the settlement layer."
The project aims to ensure secure and seamless settlement of products prior to T2S implementation across ICSDs and CSDs, commercial bank money and central bank money.
Eurex Clearing's CEO, Thomas Book, said the agreement gives it access to two of the largest collateral pools in Europe, enhancing its pooling market.
"[The deal] will strengthen the GC Pooling market and support our clearing members in reducing their collateral pool fragmentation", he added.
The ICMA is hopeful that other clearing houses or CSDs might also want to join in with the project to enhance interoperability in Europe.
Meanwhile, London Stock Exchange Group (LSEG) has announced it plans to launch a new CSD in Luxembourg. It plans to offer a full range of custody and settlement services using the group's Italian CSD's infrastructure. LSEG said Luxembourg was chosen due to customer demand and will enable to group to expand its custody and settlement services.