Opalesque Industry Update - Euroclear and The Depository Trust & Clearing Corporation (DTCC) have signed a Memorandum of Understanding to create a joint collateral processing service which will significantly increase efficiency, reduce risk and support the growing collateral needs of industry participants. |
Initially, the joint services will offer automatic transfer and segregation of collateral based on agreed margin calls relating to over-the-counter derivatives and other collateralised contracts. This will significantly reduce settlement risk, increase transparency around collateral processing on a global basis and will provide maximum asset protection for all participants. DTCC and Euroclear will also establish mutual links, permitting firms to manage collateral held at both firms' depositories as a single pool.
The joint service will be operated as an industry cooperative and will provide open and non-discriminatory access to all other collateral processing providers, including custodians, CSDs and ICSDs, that wish to link their services to the joint service.
Tim Howell, Chief Executive Officer, of Euroclear said: “As demand for collateral increases, both DTCC and Euroclear are each developing our own means to ease collateral sourcing and mobilisation for clients. Euroclear’s global Collateral Highway is a key part of our strategy to deliver such an infrastructure. We are delighted to work with DTCC and its clients to optimise the use of our collateral inventories as part of a new, joint service.”
“The industry is focused on collateral management as a result of concerns over how to address operational and counterparty credit risk while navigating the changing regulatory landscape,” said Michael Bodson, DTCC’s President and CEO. “DTCC’s Margin Transit Utility, currently under development, will help mitigate risks, lower costs and create greater efficiencies, by providing straight-through-processing to help satisfy obligations of clients. We look forward to leveraging the strengths of both institutions to meet the collateral needs of industry participants.”
DTCC’s depository services are offered by The Depository Trust Company, a wholly-owned subsidiary of DTCC.
Euroclear is the world’s largest provider of domestic and cross-border settlement and related services for bond, equity, derivatives and fund transactions. The Euroclear group includes Euroclear Bank, based in Brussels, as well as Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, Euroclear Sweden and Euroclear UK & Ireland.
In 2012, the Euroclear group settled the equivalent of EUR 542 trillion in securities transactions, representing 159 million domestic and cross-border transactions, and held more than EUR 23 trillion in assets for clients. More than EUR 700 billion of collateral was transported via the Collateral Highway on a daily basis at the end of 2012. Euroclear Bank is rated AA+ by Fitch Ratings and AA by Standard & Poor’s.