There are huge opportunities in Australia for tri-party collateral management as the securities finance industry follows global trends in managing collateral, delegates at the Global Investor/ISF Australia Master Class heard on July 9.

Attendees at the event included beneficial owners such as super funds, to securities lending and repo market participants.

“Collateral management is becoming much more important. Tri-party or multi-party is becoming much more the widespread or preferred method for managing collateral,” said Roger Cohen, founder and principal at Portable Beta and chair of the collateral management panel.

Andrew White, general manager, settlement services for the Australian Securities Exchange (ASX), said he also expected regulation to encourage collateralisation to move to non-cash.

“Certainly in Australia most of our collateralisation today is in the form of cash,” he said. “They’ll need to use non-cash to meet the increased collateral demand.”

The ASX, in partnership with Clearstream Banking, has launched a tri-party service called ASX Collateral, which currently has balances of around $500m in fixed income assets. White said he expected that figure to reach $2bn by the end of July and revealed that equities would be launched next year.

Kieran Buckley, executive director at Morgan Stanley, predicted growth in tri-party repo collateral management to match that of the US where growth has been rapid.

“ definitely the future of the equity repo side in Australia as well” he said. “Tri-party is a number one goal in our view for Australia. We want to move away from bilateral agreements.”

Buckley also stressed that tri-party was not only good for agents and service providers but also aids in risk mitigation through both geographical and client-type diversification.

“Hopefully tri-party will broaden the client base that will participate in this product,” he said.

White said ASX Collateral is unique because the service retains the assets within Australia at the central securities depository.
“It’s a powerful solution. We are definitely seeing it adding value,” he says.

After the equities capability is launched next year, ASX Collateral will examine what it can do globally via the arrangement with Clearstream.