Clearstream and Strate, the South African CSD, yesterday signed a Letter of Intent (LOI) to explore a new triparty collateral management service, intended to target the collateralization of exposures in the South African market.
Under the LOI, Strate will look to utilize Clearstreams collateral management infrastructure, the Global Liquidity Hub, for the allocation, optimization and substitution of local 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. Jeffrey Tessler, CEO Clearstream, said: Companies need to more efficiently handle their collateral holdings and exposure, and our outsourcing service addresses this industry concern.
Clearstreams unique white-labeled infrastructure manages collateral across time zones and regions while the assets stay in the respective domestic market and under local legislation, which is a prerequisite for many countries before moving into a collateral management outsourcing agreement.
Commenting on the initiative, Monica Singer, CEO Strate, said: Strate continues to explore ways to ensure that South Africa is fully integrated into the global financial markets. We are always looking for ways to introduce efficiencies for our clients, while at the same time reducing their risk.
Strate is Clearstreams third Global Liquidity Hub client. The ICSD and Cetip, the Brazilian CSD that operates the leading marketplace for fixed income securities and over-the-counter (OTC) derivatives in Latin America, launched their collateral management outsourcing service for Brazil on in July 2011. In August 2011, Clearstream and the Australian Securities Exchange announced exclusive negotiations to jointly develop a Liquidity Hub GO offering for the Australian market.
The service is expected to be operational with Strate by the end of the year.
Speaking to Global Custodian at Clearstreams 16th Global Securities Financing Summit, where the LOI was signed, Singer said Strate will be undertaking an education campaign on the importance of collateral in the local market. There is still not a great awareness in our market of the need for collateral and what it is needed for ahead of the implementation of Basel III. The key to this is posting collateral with Strate as a CSD as we are an independent third party with no liabilities and our operational risk is low. We can provide assurances as a self-regulated market player using the technology and international expertise that Clearstream has provided in Brazil and Australia and access an international market for posting collateral. For the first time the foreign assets could be used as collateral in South African transactions and the assets under our control could be used for transactions happening internationally.
(JDC)