Clearstream launches Funds as Collateral Committee

Clearstream launches Funds as Collateral Committee

29.03.12

* Promoting the use of investment funds as collateral

* Use of investment funds could bring 700 billion of additional collateral to the market

Clearstream has announced the launch of the Funds as Collateral Committee (FCC) where 40 markets experts will discuss in London today the best use of investment funds as collateral. Founding members of the FCC include asset managers, industry experts and collateral management users. They will analyse the benefits of using fund shares as collateral over more established assets.

Marcus Littler, Director of Liquidity Sales at BNY Mellon, will be the inaugural FCC Chairman.

Collateral is becoming a scarce resource in the market and better quality collateral is becoming more expensive as demand soars. . Clearstream estimates that around 700 billion Euros can be made available to the market as additional collateral based on the most liquid money market funds managed in Luxembourg and Dublin. Clearstream has added investment funds to its portfolio of asset classes and is the only provider to offer a standardized and automated service which leverages investment funds to secure collateralised transactions, i.e. for money market transactions, securities lending, OTC derivatives, credit line guarantees.

Philippe Seyll, Member of the Executive Board of Clearstream and Head of Investment Funds Services at Clearstream, said: “The financial crisis and key events such as the Lehman Brothers collapse have revealed how insecure cash is as a collateral tool. Fund shares are a good alternative to sovereign bonds and cash. Clearstream clients with their investment funds on our order routing platform Vestima can allow investors to use their fund shares as collateral to support activities ranging from securities lending to writing our over-the-counter (OTC) derivatives contracts and repo trades. These and other topics will be discussed at the FCC, a new sounding board for the market.”

Marcus Littler, Director Liquidity Sales at BNY Mellon and inaugural Chairman of the Funds as Collateral Committee, said: “Using investment funds as collateral can offer managers and distributors an additional opportunity for their funds. Users of collateral – such as banks, asset managers and treasurers – have an alternative to cash collateral that is more secure and potentially cheaper. This new committee will enable us to debate issues as and industry and help design solutions as a result.”

Clearstream has long focused on securities financing mechanisms which provide liquidity to the international capital markets. The company offers a highly automated and safe environment for its clients – borrowers, lenders, and those dealing with bonds, cash, equities or funds – or any participant collateralizing those assets. Clearstream delivers a wide range of collateral management services together with a suite of securities lending products under its Global Securities Financing (GSF) services. In February 2012, the GSF monthly average outstanding volume reached 599.7 billion Euros.

Restoring investor confidence after the 2007 market liquidity failure has been a priority in the last couple of years. The post-crisis environment with its regulatory initiatives that increase the need for capital and liquidity is questioning industry capacity to supply enough collateral in the form of traditional financial instruments. Collateral management has traditionally been supported by more established asset classes such as government securities or cash.