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Clearstream, CDS offer Canada tri-party service
13 March 2012
The new service enables Canadian market participants to meet demands for collateral in a cost effective and operationally efficient way
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Clearstream
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collateral management
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Canadian financial institutions are set to benefit from a new collateral management service planned for development by Clearstream and the CDS Clearing and Depository Services (CDS).
The two companies have signed a letter of intent that will allow the creation of a new tri-party collateral management service for Canada.
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 minimise the opportunity cost associated with collateral fragmentation, according to Clearstream.
For example, CDS clients would be able to handle their collateral needs more strategically, collateral would remain in the domestic market and Clearstream would manage collateral across time zones and regions, while enabling the assets to remain in the domestic market and under local legislation.
Ian 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 tri-party collateral management service in Canada. 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.”
Clearstream’s Liquidity Hub GO service went live with Brazilian CSD Cetip in July 2011 and is now 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 is being driven by 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.