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New global financial regulations, enacted in the wake of the global financial crisis to prevent a repeat of the Lehman’s collapse, are now making themselves felt across the OTC derivatives sector, potentially imposing comprehensive clearing and margining requirements on both the buy- and sell-sides of the industry.
A number of long-awaited keystones of the new global financial architecture, including EMIR and Dodd-Frank, are currently gaining shape. It still remains to be seen though whether the new US government might roll back the latter. Clearstream supports sell and buy side market participants in their efforts to plot a course through these choppy new regulatory seas.
Securities held under custody in Clearstream’s ICSD and CSD business both increased by 2 percent from EUR 6.69 trillion and EUR 4.47 trillion respectively in January 2016 to EUR 6.80 trillion and EUR 4.54 trillion in January 2017. For its Global Securities Financing (GSF) services, the monthly average outstanding in January 2017 reached EUR 495 billion, a decrease of 5 percent over January 2016 (EUR 519.8 billion). Investment Fund Services (IFS) processed 1.9 million transactions, a 23 percent increase over January 2016 (1.5 million).
Among the many upcoming changes, standard OTC derivatives will now face new clearing obligations, while uncleared OTC derivatives trades will face not only new and tougher initial and variation margin requirements but also tricky margin segregation demands.
The changes will have a significant, even transformational, impact on the way Clearstream’s clients do business: sell-side participants, such as banks, need to ensure that both they and their clients are ready for more complex, collateralised relationships, such as central clearing and initial margin segregation, some buy-side institutions may be facing a root-and-branch overhaul of their businesses.
At the Deutsche Börse Global Funding and Financing Summit in January more than 800 central bankers and other industry specialists from 30 countries gathered in Luxembourg to discuss how they could meet the global challenges of collateral management – across continents and time zones.
“During the last ten years since the financial crisis, we have seen a major transformation throughout the industry,” said Philippe Seyll, Co-CEO of Clearstream Banking S.A. and Head of Investment Fund Services and Global Securities Financing for Clearstream. “The securities finance industry and collateral management play a central role in the effective and efficient functioning of markets. By outsourcing collateral and margining activities to triparty agents such as Clearstream with its Global Liquidity Hub, instead of developing costly in-house solutions from scratch, market participants can focus on their core business, while benefiting from asset optimisation and full regulatory compliance.”
