July 9, 2012
Making maximum use of (domestic) collateral at Euroclear
You may have seen coverage on other sites which copied the Euroclear Press Release (link below), but they didn’t really explain what the ‘Collateral Highway’ really is.
Under the current Euroclear model, securities at a domestic CSD are rooted into that domestic market, e.g. bonds held in Euroclear Sweden stay in Sweden to take part in Swedish transactions.
What Euroclear have done is propose to create a trans-national infrastructure which provides a new approach to the management of securities:
- An ‘Open Inventory’ technology platform, enabling clients of Euroclear (such as a CCP) to track their securities holdings across the trans-national boundaries
- APIs / Access points, for a wide range of firms (such as Agent Banks, other CSDs, Clients, Clearing Brokers, CCPs) to integrate with this platform
The end result should enable a security held anywhere in the Euroclear network, to be delivered for Collateral purposes against any transaction in any other Euroclear covered country. Firms transacting Repos, Stock Loans, Commercial Loans or OTC (ISDA) Trades (under a CSA) could receive securities previously inaccessible as cover.
The press release implies that the Highway has the potential to integrate any of the 90 central banks and CCPs that Euroclear already has technical connectivity to, around the world. I assume this project will also need the equivalent of an ISDA Master / Local Legal Opinions, to ensure that the pledge of a security across borders, can be realised in a default by a taker in another country.
The press release makes clear that the current ICSD approach at Euroclear requires securities to be deposited within Euroclear Bank, this new infrastructure busts out of that constraint, and in effect creates a global platform for the supply of collateral assets.
Does this introduce a new systemic effect, linking bond markets and collateral takers around the world in a more tightly coupled system, and potentially bring new effects in the event of a crisis? Your thoughts welcome…
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