Clearstream and Canadian CSD Clearing and Depository Services (CDS) have signed a letter of intent to explore the creation of a new triparty collateral management service for Canadian financial institutions.
CDS would utilize Clearstreams collateral management infrastructure and the Liquidity Hub GO service to allocate, optimize and substitute domestically held collateral on a fully automated basis and in real time. The Canadian CSD currently manages 4 trillion of collateral.
The cooperation takes place ahead of regulation such as EMIR and reforms like Basel III, which requires financial and non-financial institutions to improve their liquidity management and, accordingly, their collateral management efficiency. Curtis Wennberg, chief business development officer at CDS, noted that additional regulations have spurred demand efficient collateral management.
Liquidity Hub GO for Canada aims to reduce operational risks and costs as well as minimize the opportunity cost associated with collateral fragmentation. Clearstream will manage the assets while allowing them to remain in the respective domestic market and under local legislation.
Wennberg added that the separation of Canadian banks’ equity and debt collateral and to some extent their OTC derivatives makes for less sophisticated collateral management. Canadian banks are increasingly talking about collateral management development, he said.
Jeffrey Tessler, CEO Clearstream, noted that this latest announcement signalled the fourth strategic partnership in the collateral management outsourcing space. It confirms the validity of our Liquidity Hub GO strategy in supporting market infrastructures across the globe with a state-of-the-art collateral management solution, he said. Clearstream is committed to continue forging strategic links which help the customers of our strategic partners to better utilize their scarce collateral including access to our global liquidity pool, which is building further links to a growing central counterparty (CCP) network and which is enabling customers to gain from greater central bank money access on a global basis. We are delighted to work with CDS to examine the development of a collateral management service for Canada.
Ian Gilhooley, CEO of CDS, said: Collateral management efficiency and effectiveness will be critical in a future world where global demand for eligible collateral is expected to increase exponentially. This new partnership is a logical choice to enable CDS to provide a triparty collateral management service in Canada. Our end vision is that a Canadian participant will be able to efficiently and effectively meet any demand for collateral, using collateral that is held anywhere in the world. We believe that this will become a very powerful capability in the new environment that we see developing.
Clearstreams Liquidity Hub GO service went live with Brazilian CSD Cetip in July 2011 and is now successfully providing collateral management services that cover Brazilian domestic OTC derivative exposures. Since then further development plans have been announced between Clearstream and the Australian Securities Exchange (August 2011) and South African CSD Strate (January 2012).
Commenting on further opportunities for Clearstream’s collateral management service, Stefan Lepp, CEO of Clearstream Banking Frankfurt said: We have had several conversations with a number of infrastructure service providers and central banks. One strength is that the assets stay where they are, so we actually don’t transfer them onto our books.
(JDC)