Clearstream's Move Toward 24/7 Settlement Will Improve Liquidity

As announced in December, Clearstream will be extending its settlement deadlines in the Americas in a phased approach that will ultimately cover the entire U.S. business day in 2016. Arnaud Delestienne, head of core product management for Clearstream, explains how this project came about and how the extension will benefit market participants.

“What we are doing here is basically the continuation of a project we started five or six years ago when we decided we would actually provide settlement and ICSD services to Asian counterparties in their local time zone. I think there was a realization at the time that we needed to go beyond the traditional European- centric approach and become much more of a global provider that is able to respond to customers’ needs in their local regions, their local time zones,” says Delestienne. “So we’ve actually already updated our system so that we can operate covering the major Asian markets from our operating center in Singapore. That was delivered in 2009. What we are doing here is we are taking this approach to the next stage, which is to extend to the Western hemisphere and improve our coverage of the American time zone and of the American business day. There’s obviously a strong focus on the U.S. market because of its size and importance to the global economy, but really this is improving our settlement capabilities across the board.”

As a result of the extension, Clearstream will effectively operate settlement 24/7, beginning with the start of the Asian business day and ending at the close of the U.S. business day.

“There may still be a need for a few minutes to run end-of-day processing,” explains Delestienne. “Today we’re still running from 21:00 CET to 18:00 CET the next day, so we’re already in effect operating 21/7 today. We’re just trying to improve that again and get as close as possible to 24-hour coverage.”

Clearstream’s phased approach begins in April 2014, where internal and domestic U.S. transactions, as well as the U.S. Dollar cash, can be settled for an additional two hours until 20:00 CET (14:00 EST), an extension of two hours compared to the current cut-off time of 18:00 CET (12:00 EST). Then in 2015, the deadlines will extend another 1.5 hours until 21:30 CET (15:30 EST) and then will cover the full U.S. business day by 2016. Meanwhile, Clearstream will improve its deadlines for its links to other North and South American markets. Delestienne explains why the ICSD is working toward this coverage in steps.

“It’s a mix of operational and technical improvements to make, but also the need for us to make prioritization in terms of system developments, at the time when regulations have requirements for market infrastructures in terms of investments, so we need to navigate between those different constraints and find the right balance between the different priorities. This is why we’re going for a phased approach.”

The extended settlement deadlines should have positive liquidity implications for Clearstream clients. One advantage, says Delestienne, “is for our existing clients to benefit from an extended settlement window when they interact with local counterparties in the various American markets. That means if they transact with counterparties in the U.S. or Canada or Mexico or Brazil or Argentina, they will benefit from an extended window of approximately two hours. And by that they can also obviously improve their collateral management and liquidity management in those currencies.”

Plus, he adds, the “extended window will be attractive to a number of new participants that are located both in the American time zone but also outside of the American time zone, and bringing in those new participants will again contribute to increasing this liquidity hub within the Clearstream world and improving connections to local markets helps to mobilize collateral more easily. So it’s really those different dimensions all contribute to, again, offering an improved liquidity mechanism.”