"BRC is the first implementation of central counterparty clearing for the over-the-counter debt market in Australia and the Asia Pacific region, and only the fourth in the world," said Robert Elstone, CEO and Managing Director of SFE Corporation Limited. "BRC's successful implementation speaks volumes for the pro-active approach of the Australian financial community and in particular the major trading and investment banks that have supported the project from inception.
BRC will have a fundamental impact on the trade and settlement process in Australia and the Asia Pacific region, by providing customers with cost and credit efficiencies previously available to futures markets only. These include balance sheet netting, reduced credit risk and settlement costs, and a range of margin off-set opportunities.
Traditionally the wholesale market has settled transactions directly between the two parties involved in the trade, with bonds delivered against receipt of cash via a central securities depository (CSD). With BRC, SFE Clearing becomes the counterparty to each trade, mitigating risks to the trading parties and reducing the amount and number of settlements, as purchases and sales, repos and reverse repos are netted. This process known as 'novation', then allows SFE Clearing to manage the net positions, utilising initial and variation margins in the same manner employed in the futures markets.
"The project grew out of market demand, was financed by the SFE and was a full year in development and testing," said Martin Stockley-Smith, General Manager - SFE Clearing. "It involved the introduction of new systems and processes, further utilising SFE Clearing's Austraclear CSD, and meeting of the most stringent of regulatory requirements. This experience in product and system development has now positioned SFE Clearing to cover additional OTC products and launch a wider range of services both in Australia and overseas," he added.
The launch of BRC follows the lead of the USA and UK where similar products have been extremely well received and has been applauded by participating investment and trading banks for the cost and risk efficiency opportunities it brings to the market.
