Northern Trust has made several enhancements to its collateral management services through new clearing and tri-party links, as well as the launch of a new optimisation service.
The Chicago-based firm has become the first global custodian to offer buy-side access to LCH’s repo clearing service, following up on its direct buy-side link with the Canadian Derivatives Clearing Corporation (CDCC).
Northern Trust has also enhanced its tri-party capabilities where it will support clients trading tri-party repo through Euroclear, with the aim to provide greater counterparty diversification.
On top of these links, the custodian has created a new collateral optimisation solution designed to help institutional investors better deploy collateral and reduce costs.
The service will utilise algorithms to manage asset selection when meeting margin requirements, with the aim to reduce the market value of assets being delivered and prevent assets from being held up as collateral when they can be deployed elsewhere.
“Our clients want to be strategic and nimble in managing their investment portfolios, especially with regard to collateral management – deploying the right assets at the correct time to meet regulatory requirements whilst minimising any impact on investment performance,” said Pete Cherecwich, president of corporate and institutional services, Northern Trust.
The service was developed jointly with UK investment manager Insight Investment.
“The ability to optimise the deployment of collateral is key to reducing our clients’ counterparty risk by utilising the most efficient assets,” said Gavin Platman, head of operations strategy at Insight Investment.
“Insight Investment and Northern Trust have worked together and have devised a solution that we believe addresses our clients’ needs today and provides flexibility for the future as liquidity and collateral management needs evolve.”
The new tool marks a significant breakaway from traditional manual collateral management processes, which normally involved using spreadsheets to allocate and value assets.