The Singapore Exchange and Clearstream will target Asia’s need for collateral
Standard Chartered and Clearstream have implemented a new service to help customers in Singapore make more efficient use of collateral, as tough new financial regulations drive investor fears of an impending collateral shortfall.
Under the deal, mutual customers will be able to consolidate their assets held across both institutions into one single pool to perform collateral management transactions with any Clearstream collateral receiver. The service is part of Clearstream’s collateral management offering, the Global Liquidity Hub.
“A single collateral pool… greatly streamlines collateral management for Singaporean assets and enables our customers to maximise the use of these assets, thereby overcoming one of the most pressing challenges faced by the industry today – collateral fragmentation,” said Gerge Nast, global product head, transaction banking at Standard Chartered.
Assets held by a customer in an account with Standard Chartered in Singapore are now automatically moved to a Clearstream account at Standard Chartered when they are needed as collateral, thereby relieving customers of cumbersome manual collateral transfers and allocations. These automated procedures can be used to allocate collateral held in Singapore to cover global exposures with any counterparty in Clearstream.
The automated collateral allocation is performed in real-time and only up to the required amount. In addition, the system will also identify and allocate the ideal collateral, meaning the cheapest collateral option to match the underlying exposure requirements. When the assets are required for local settlement in Singapore or are no longer needed for triparty purposes, they are returned automatically to the customer’s settlement account at Standard Chartered.
The collateral management service will initially be rolled out for Singapore with other Asian markets such as Hong Kong to follow.
The Global Liquidity Hub is Clearstream’s integrated liquidity and collateral management environment and the Liquidity Hub Connect service is Clearstream’s solution for agent banks. The service enables customers of agent banks to benefit from Clearstream’s collateral management services to use their assets held at the agent bank for triparty transactions in the Global Liquidity Hub. Customers benefit from the Global Liquidity Hub’s full suite of services, including collateral allocation, optimisation and substitution without having to move their assets.
In addition to the collaboration with Standard Chartered, Clearstream is also partnering with the Singapore Exchange under the Liquidity Hub GO (Global Outsourcing) service which will bring a collateral management solution to the Singaporean market as a whole. Under this partnership, SGX will white-label Clearstream’s collateral management services to cover domestic exposures in Singapore.
In January, central securities depositories in Germany, Spain, Brazil, South Africa and Australia formed an alliance to tackle the expected global shortfall in collateral arising from new financial regulation. Dubbed the ‘Liquidity Alliance’, the group consists of Clearstream, Iberclear, Cetip, Strate and ASX respectively. The five companies will meet each quarter to work out the most efficient way of dealing with collateral and to discuss partnerships, commercial opportunities and key issues.
Various collateral optimisation solutions have also been launched in recent months. Citi formed its own agreementwith both Euroclear and Clearstream at the beginning of this year, while Clearstream has also partnered with Belgian bank and insurance firm Belfius to develop a new collateral service for bilateral trades, focusing on OTC derivatives and aimed at corporates and medium-sized banks.