New services and ventures for improved collateral management have been coming thick and fast in the past couple of weeks, with the latest being the introduction of a client protection model that goes above and beyond what the European Market Infrastructure Regulation (EMIR) calls for.

At a time when many firms are focused purely on just meeting all the various regulatory requirements, CME Clearing Europe chose to pursue a model that fully segregates collateral with an external custodian at the client level. It said it was the first central counterparty (CCP) globally to receive Bank of England approval for the new model, which provides protection for all bankruptcy scenarios.

This model is designed to allow the client clarity and legal certainty with regards to how client assets would be treated in bankruptcy scenarios. It is available across all of CME Clearing Europe's OTC financial and commodity derivatives as well as futures products. 

CME Clearing Europe is working with central securities depositories (CSD) and custodians to offer clients the option of holding their securities at different locations. The first CSD to offer this to their clients is SIX Securities Services and the first custodian to support this model is BNP Paribas Securities Services.

"Our innovative approach to greater protection of clients' securities in a jurisdiction of their choice with operational efficiencies is attractive to asset managers, hedge funds and regional banks that use securities for initial margin purposes at our clearing house," said Lee Betsill, CEO of CME Clearing Europe.

"The legal framework that we have designed for the full segregation account matters to clearing members and their clients because it has been structured to provide preferential capital treatment."

Both SIX Securities Services and BNP Paribas Securities Services spoke of how partnering with CME Clearing Europe fit with their collateral strategies.

Thomas Zeeb, CEO, SIX Securities Services, voiced excitement in "pioneering" the new service with CME Clearing Europe. He said asset managers, banks and other market participants will be able to make the best use of the pools of securities they already hold with it. "In the context of real-time clearing and future regulatory challenges, this is a major step forward," he said.

For BNP Paribas Securities Services, the move enhances its product offering. "This initiative forms an integral part of our wider Collateral Access solution, which allows us to offer buy-side and sell-side firms an end to end straight through collateral and custody solution for their cleared derivatives transactions," said Alain Pochet, head of clearing and custody services at the French company.

The service will initially be available to some global insurance firms in Switzerland, but will eventually be rolled out to other markets.

Driving the creation of the new service is the EMIR mandate for the centralised clearing of OTC derivatives, which means buy-side firms will have increased collateral management requirements.

Both CME Clearing Europe and SIX Securities Services issued announcements concerning the service. The Swiss-based group included favourable comments from Swiss Life AG and BayernInvest to underline the demand the service provides expect the offering to generate.

This news came hot on the heels of another big development in the collateral space.

Euroclear and The Depository Trust & Clearing Corporation (DTCC) recently announced they planned to form a collateral processing joint venture. The two industry-owned groups will focus first on launching a Margin Transit Utility to provide straight through processing to the settlement of margin obligations. They also want to pilot a Collateral Management Utility to address the problem of sub-optimal collateral mobility and allocation at a global level.

Meanwhile, Euroclear Bank and BNP Paribas Securities Services said their joint tri-party collateral management service, which was introduced in Italy and Spain last year, has been extended to Belgium, France, Germany and the Netherlands.

Peter Axilrod, head of corporate strategy and business development at DTCC, recently told ISS that collateral management and collateral processing are of great concern to the industry because all the new financial reform rules that are being put in place now around the world are going to significantly increase not only the amount of margin required but also the number of margin calls.

"From our mutual stakeholders -- Euroclear's and DTCC's -- our estimates consistently range between five and 10 times the number of current calls," said Axilrod.

"The other thing that financial reform is doing is really creating more flows cross-border. If you look at what's generating the calls, a lot of it is the clearing requirements. So now there have to be separate calls in separate currencies for not only each clearing house but different products at each clearing house," he said.

Axilrod said Euroclear and DTCC combined have more than $75 trillion in securities on deposit in their respective depositories.

Image courtsey of fotographic1980/FreeDigitalPhotos.net 

by Simon Appleton, Director, Regulatory Consulting, Duff & Phelps' Kinetic Partners Divison

 

Never before have firms been under such close regulatory observation. The constantly evolving regulatory landscape has made it difficult for firms to adjust to new political and legislative changes that have significantly impacted the way business is done in the financial services industry. More than ever, regulators and stakeholders are expecting not just compliance from firms but for them to play an active role in the detection process. The best way firms can protect themselves against enforcement, other than through prevention techniques, is to identify abuse and report the suspicion before it comes to the regulator’s attention.

Recognising the need to secure its informational assets, Think Money Group required a solution that would enable a proactive approach to monitoring, whilst supporting regulatory compliance.

By Charles Gubert

 

National hurdles impeding the pan-EU distribution of fund vehicles offered by EU asset managers should be removed, according to a report published by Open Europe and The New City Initiative (NCI), a think-tank representing the interests of asset managers.

Security has traditionally been sold on a powerful combination of fear, uncertainty and doubt. With cyber security that is no longer the case. With cyber security the simple truth is so scary that there is no need to go over the top to induce a state of panic in a potential client.

by Fiona Hamilton, Vice President, EMEA Operations at Volante Technologies Ltd

In the first article in this three part series we looked at the business and technical drivers behind the business case for implementing a common data integration architecture.   In the second part, we examined the process of deciding how to best achieve that end goal by selecting the most appropriate architecture. In this third and final part we look at some of the key points to bear in mind when implementing the chosen integration architecture. For the purposes of this article we are assuming that a decision has been made to implement a vendor-based solution but many of the points would be equally applicable where internal hand coding has been selected.

HoT talks to Paul Marks, Global Head of Electronic Trading and Electronic Trading Services for Futures, Clearing and Collateral at Citi.

HoT: You recently announced the launch of futures on Citi’s new ‘Citi Velocity’ platform. That’s an interesting innovation.

PM: Yes it is. ‘Citi Velocity’ is the bank’s single-dealer platform, which covers Credit, Rates and FX.  Based on client demand, we’ve listed futures products side-by-side with the bank’s liquidity for those other underlying asset classes.