New efficient collateral management service targeted for Canada

Efficient collateral management service targeted for Canada: New plans announced by Clearstream and CDS Clearing and Depository Service

12/03/2012

Canadian financial institutions are set to benefit from a new efficient and effective collateral management service planned for development by Clearstream and CDS Clearing and Depository Services Inc. (CDS). The two companies signed a letter of intent last week and will now move forward in exploring the creation of a new triparty collateral management service for Canada. The service would enable Canadian market participants to meet demands for collateral in the most cost effective and operationally efficient way possible: CDS, the Canadian central securities depository, would utilise Clearstream’s collateral management infrastructure and the Liquidity Hub GO service to allocate, optimise and substitute domestically held collateral on a fully automated basis and in real time.

Liquidity Hub GO for Canada would reduce operational risks and costs as well as minimize the opportunity cost associated with collateral fragmentation. CDS clients would be able to handle their collateral needs more strategically. Collateral would remain in the domestic market. Clearstream is the only collateral management services provider which can manage collateral across time zones and regions while enabling the assets to remain in the respective domestic market and under local legislation.

Jeffrey Tessler, CEO Clearstream, noted that this latest announcement signalled the fourth strategic partnership in the collateral management outsourcing space. “It confirms the validity of our Liquidity Hub GO strategy in supporting market infrastructures across the globe with a state-of-the-art collateral management solution,” he said. “Clearstream is committed to continue forging strategic links which help the customers of our strategic partners to better utilise their scarce collateral including access to our global liquidity pool which is building further links to a growing central counterparty (CCP) network and which is enabling customers to gain from greater central bank money access on a global basis. We are delighted to work with CDS to examine the development of a collateral management service for Canada.”
 
Ian A. Gilhooley, President and CEO of CDS, said: “Collateral management efficiency and effectiveness will be critical in a future world where global demand for eligible collateral is expected to increase exponentially. This new partnership is a logical choice to enable CDS to provide a triparty collateral management service in Canada. We intend to leverage the functionality of our securities depository with existing, best-practice tools provided by Clearstream’s Liquidity Hub GO service. Our end vision is that a Canadian participant will be able to efficiently and effectively meet any demand for collateral, using collateral that is held anywhere in the world. We believe that this will become a very powerful capability in the new environment that we see developing.”
 
Clearstream’s Liquidity Hub GO service went live with Brazilian CSD Cetip in July 2011 and is now successfully providing collateral management services that cover Brazilian domestic OTC derivative exposures. Since then further development plans have been announced between Clearstream and the Australian Securities Exchange (August 2011) and South African CSD Strate (January 2012). The initiative has gained momentum as upcoming regulatory changes arising from the Basel III framework require financial and non-financial institutions to improve their liquidity management and, accordingly, their collateral management efficiency.
 
The recently published Accenture/Clearstream report “Collateral Management: Unlocking the Potential in Collateral” revealed that the financial services sector could save more than 4 billion Euros annually in collateral management costs by addressing operational inefficiencies.