Euroclear Bank, the international securities depository, has teamed up with BNP Paribas Securities Services to launch a service which broadens the pool of collateral available for buy-side clients.
With the new service, mutual clients can pool their fixed income and equity assets and use the aggregated collateral to fund tri-party repo transactions.
With new rules for OTC derivatives due to come into force by the end of 2012, both buy- and sell-side firms will be required to collateralise their swap transactions with specific types of high-grade collateral – something that is not currently formally required under bilateral swaps deals. Moreover, the European debt crisis has called into question the viability of using sovereign bonds as high-grade collateral.
Under the BNP Paribas and Euroclear Bank partnership, client securities which can be used as collateral will flow freely between the two organisations, with BNP Paribas Securities Services retaining local custodian responsibilities.
When Euroclear Bank no longer needs client securities as collateral, they will be reinstated into the main client account held at BNP Paribas Securities Services.
Euroclear said the service formed part of a multi-market collateral programme to be rolled-out in the next few months, which would improve collateral flexibility.
Arrangements to help sell-side dealers manage increased collateral obligations are also gaining traction, with clearing houses launching margining solutions that create cross-asset netting efficiencies.
New York Portfolio Clearing, a derivatives clearing house joint owned by NYSE Euronext and The Depository Trust & Clearing Corporation, has added interest rate swaps cleared by LCH.Clearnet’s SwapClear service to its ‘one-pot’ cross margining arrangement. The clearing house initially allowed cross-margining between fixed income cash and repo trades cleared by DTCC subsidiary the Fixed Income Clearing Corporation and interest rate futures traded on NYSE Liffe US.
The inclusion of SwapClear is likely to offer significant advantages to brokers, given the service clears around 50% of interest rate swaps globally.
US exchange operator CME Group will launch a similar service from 7 May, with portfolio margining between OTC interest rate swaps and Eurodollar and US Treasury futures.
According to the CME, the scheme – which will initially be used for house accounts before being extended to members – will offer capital efficiencies of up to 85% for some portfolios.