Deutsche Boerse Eyes U.S. Collateral Push Through Custodian Banks

The U.S. market remains relatively untapped for Deutsche Boerse’s central securities depository (CSD), Clearstream, and it plans to launch a partnership with a custodian bank based there to gain a foothold.
By Joe Parsons(2147488729)
Deustche Boerse is keen to expand its collateral management offering to the U.S. with a joint venture eyeing the Treasury market as a potential gap to fill, according to an executive at the Frankfurt-based group.

The U.S. market remains relatively untapped for Deutsche Boerse’s central securities depository (CSD), Clearstream, and it plans to launch a partnership with a custodian bank based there to gain a foothold.

“It is important to tap other liquidity pools around the world where you can find quality collateral,” says Eric Muller, managing director and head of IR and Treasury, Deutsche Boerse, on an earnings conference call.

“If you think about high quality collateral and what clearing houses might be after, then obviously the government bond market is important, and that in the U.S. sits with the custodians such as BNY Mellon and J.P. Morgan.”

The Depository Trust and Clearing Corporation (DTCC) currently dominates the U.S. market through its CSD, providing settlement services for virtually all equity, corporate and municipal debt trades.

However, Muller feels there are other ways to move into the U.S. without partnering with the DTCC, mainly through global custodians based there.

“While we have seen the plans and announcements, our endeavours in the U.S. are not limited to connecting to DTCC, but through the custodians where the U.S. Treasuries are placed, and that is where we are thinking about in the U.S. market,” he adds.

Following the global implementation of stricter rules for over-the-counter (OTC) transactions, firms are required to post more and higher quality collateral for their trades in the case of default. This has resulted in CSDs, such as DTCC and Clearstream, to expand their cross-border operations to meet this demand.

“After intense discussions with clients, all agreed that additional collateral will be needed in the new regulatory world… An additional $2 trillion in collateral might be needed in the system,” Muller says. “We are preparing our clients for the new environment and collateral management will be such a key driver moving forward.”

The announcement of Deutsche Boerse’s intentions comes one month after Euroclear, a rival of Clearstream, entered into a joint venture with the DTCC to launch a global collateral processing service.

DTCC is hoping to push through a clearing mandate for the $1.6 trillion tri=party repo market, in which it intends to centralize the clearing and settlement of repo transactions through its subsidiary, the Fixed Income Clearing Corporation (FICC).

Clearstream has already established partnerships with global infrastructure providers, such as ASX in Australia, Cetip in Brazil, and Strate in South Africa, as well as custodians and agent banks such as BNP Paribas Securities Services, Citibank and Standard Chartered.

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