Northern Trust Partners with ABN AMRO for Derivatives Clearing and Custody

Northern Trust and ABN AMRO Clearing have partnered on a solution that combines clearing and custody/collateral management for the anticipated increased margin requirements. The solution will start in the Netherlands but the two firms will then try to grow the offering to other European markets.

The services works for users such as pension funds and asset managers with accounts at ABN AMRO who, under the expected regulatory environment of the European Market Infrastructure Regulation (EMIR), need to move client’s margin cleared at a central counterparty (CCP) into segregated accounts. To improve transparency, Northern Trust will be responsible for overseeing the collateral and moving it into the segregated accounts.

“It’s an enhanced type of account structure to assist pension funds and asset owners in delivering transparency and safety as they clear OTC derivatives across a CCP,” explains Justin Chapman, global head of Industry Management at Northern Trust.

“The whole idea is to bring clarity and transparency,” says Gildas Le Treut, global director of Prime Clearing at ABN AMRO Clearing. ”We started in the Netherlands, but this service can be expanded to other European markets.

“Some think there should be a one-stop shop, but we truly believe you need the best-of-breed-solution,” and thus ABN AMRO provides the clearing expertise, while Northern Trust provides global custody and collateral management expertise,

ABN AMRO’s experience in this space includes when it started building out its capabilities in 2009 to become a clearing agent for interest rate swaps (IRS), and in January 2010 the firm began onboarding mainly Dutch asset managers.

“Dutch pension funds and insurance companies with derivative exposure are highly sophisticated and will face a number of unique regulatory challenges,” says Chapman. “Working with ABN AMRO Clearing we can reduce the risk associated with counterparty and settlements and enhance the safety of our clients’ assets within transparent account structures.”

Going forward, Le Treut thinks this type of collaboration can be similarly used for other regulations such as the Alternative Investment Fund Managers Directive (AIFMD). “For clients, we (prime brokers and custodians) need to work closely together.”