Securities Services
Where is collateral going to come from?
With increased levels of exposure to be covered, the industry is asking itself where is all the collateral required going to come from. Stefan Lepp, head of Global Securities Financing at Clearstream, believes he has the answer.
Collateral has never been so sexy, it seems. A study by Accenture and Clearstream shows that banks are maintaining "excessive levels" of collateralisation to the tune of EUR 400 million. Stefan Lepp, global head, securities financing, Clearstream, believes they have a "pioneering" solution to help solve the world's shrinking levels of collateral.
"There are increased levels of exposures to be covered and it is difficult to get high quality collateral," says Lepp. In addition to its GC Pooling solution, which facilitates interbank money market trading based on an ECB-eligible pool of collateral, Clearstream says demand for its Global Liquidity Hub is growing. Its unique selling point he says, is that it enables domestic assets to remain in the domestic market but to be used as collateral to cover exposures in other parts of the world. "We are bringing pools of collateral together without demanding collateral move jurisdiction," says Lepp.
Brazil's Cetip, which is responsible for 75% of Brazil's OTC market, is using Clearstream's Global Liquidity Hub, to provide more cost-effective collateral management to its customers using domestic assets that remain within Brazil. The second phase of the project will entail using international assets to collateralise exposures in the Brazilian market. The Australian Stock Exchange (ASX) also recently signed up for Clearstream's collateral management outsourcing service its Global Liquidity Hub, which will enable ASX clients to more efficiently and cost effectively leverage assets held in the Australian CSD, Austraclear and CHESS, the settlement system for equities.
Stepp believes its Global Liquidity Hub, goes some of the ways towards answering the question, "Where is all the collateral required going to come from." He says the problem is the inefficient use of collateral. By bringing pools of collateral together without demanding it move jurisdiction, Clearstream's vision is that this becomes a cross-Atlantic solution going forward, identifying a complete available pool of collateral that can be used to cover exposures in any part of the world. However, he says that vision is some ways off from being fully realised. In the meantime, however, Clearstream is building technical infrastructure to facilitate its development.
Date Posted:24th September 2011