Standard Chartered targets collateral shortfall
Standard Chartered has enlisted Clearstream and Euroclear to help customers make more efficient use of collateral, as tough new financial regulations drive investor fears of an impending collateral shortfall.
Under the deals, which were made separately, assets held at Standard Chartered will be available for use as collateral via Belgium-based Euroclear’s ‘collateral highway’; they can also be consolidated through German Clearstream’s ‘global liquidity hub’. The aim is to make it easier for Standard Chartered customers to cover their global exposures from a single collateral pool.
“Not only will clients across Asia, Africa and the Middle East be able to effectively collateralise obligations on a real time basis, they can overcome an industry challenge of collateral fragmentation as well,” said George Nast, global product head, transaction banking at Standard Chartered.
Euroclear held €23 trillion in assets for clients as of last year, while Clearstream holds €11.5 trillion. Euroclear processed €542 trillion in securities transactions in 2012, while Clearstream’s customers currently comprise approximately 2,500 financial institutions in more than 110 countries, according to the two firms’ own figures.
“The agreement with Standard Chartered to make assets in their network available to the Collateral Highway will ease cross-border financing,” said Olivier Grimonpont, general manager and region head, Asia Pacific at Euroclear. “Euroclear Bank is active in collateralising many types of transactions, including cross-border RMB repo deals. Access to assets held by Standard Chartered to collateralise these transactions will open the market even further. We are delighted to be partnering with Standard Chartered to add a tri-party dimension to their collateral management service offering and to offer even deeper pools of liquidity to our mutual clients.”
The need for more collateral has been fuelled in recent years by the advent of regulations such as Dodd-Frank in the US, EMIR in Europe and Basel III, all of which mandate higher collateral requirements for banks. In particular, Dodd-Frank and EMIR both require the central clearing and reporting of the majority of formerly OTC derivatives contracts – a demand that means banks will have to source collateral as margin at CCPs.
In January, central securities depositories in Germany, Spain, Brazil, South Africa and Australia formed an alliance to tackle the expected global shortfall in collateral arising from new financial regulation. Dubbed the ‘Liquidity Alliance’, the group consists of Clearstream, Iberclear, Cetip, Strate and ASX respectively. The five companies will meet each quarter to work out the most efficient way of dealing with collateral and to discuss partnerships, commercial opportunities and key issues.
Various collateral optimisation solutions have also been launched in recent months. Citi formed its own agreement with both Euroclear and Clearstream at the beginning of this year, while Clearstream has also partnered with Belgian bank and insurance firm Belfius to develop a new collateral service for bilateral trades, focusing on OTC derivatives and aimed at corporates and medium-sized banks.