A joint venture between post-trade utilities Euroclear and the Depository Trust and Clearing Company is targeting Q4 2015 for the launch of a new service to help buy-side firms monitor their collateral positions.
DTCC-Euroclear Global Collateral is hoping to introduce its Margin Transit Utility (MTU) before the end of next year, according to executive chairman Mark Jennis, also managing director, strategy and business development, at the DTCC. The MTU will provide straight-through processing of margin obligation settlement, which will enable users to track and monitor their margin and collateral positions.
"Buy-side firms are driving demand for the MTU. They are concerned about how to manage multiple margin calls and are looking to track their collateral positions across all providers and locations. To do this effectively, it's critical to have a global mechanism helping settlement providers separate out collateral settlement transactions from overall settlement activity," said Jennis.
The migration of liquid OTC derivatives to central clearing – as mandated by the Group of 20 – requires asset managers to pay initial and variation margin to clearing houses, which in turn demands that most firms upgrade their ability to meet margin calls.
Eight custodian banks have so far agreed to participate in the project, and buy-side working groups are being established to help ensure the MTU is developed in line with client demand. BNY Mellon, which offers its own collateral management solutions under the ‘Collateral Universe’ brand, has not signed up.
The other main service to be provided by DTCC-Euroclear Global Collateral is the Collateral Management Utility (CMU), which is slated for a Q4 2015/ Q1 2016 launch. The CMU is intended to support the mobilisation and allocation of high-grade assets for use as collateral by market participants and builds on the Euroclear’s existing Collateral Highway service.
"Our intent is for the CMU to be accessible to all central securities depositories in due course, but currently there is a significant operational challenge in connecting up complex collateral engines," said Jennis.
The joint venture, which was first announced last month, will be domiciled in London but will leveraging existing DTCC and Euroclear capabilities.