A SUSTAINABLE SOLUTION TO COMBAT THE GLOBAL COLLATERAL CHALLENGE Luxembourg

Madrid

Sâo Paulo

Johannesburg

Sydney Table of contents

The Liquidity Alliance A global response to the global collateral challenge 4

THE REGULATORY LANDSCAPE Navigating seismic changes to the world’s financial industry 6

LIQUIDITY ALLIANCE PARTNER VIEWS

ASX Collateral: building a world-class, globally-connected infrastructure for Australia 8 By Andrew White, General Manager, Services, ASX, Australia

The Liquidity Alliance puts a global spotlight on Brazil’s experience in 10 By Wagner Anacleto, Chief Operating Officer, Cetip Securities Unit, Brazil

Supporting local markets with award-winning collateral management technology 12 By Stefan Lepp, Member of the Executive Board and Head of Global Securities Financing, Clearstream, Luxembourg

Collateral management services are now a “must have“ for any service provider wanting to attract assets under custody 14 By Jesús Benito, Chief Executive Officer, Iberclear, Spain

Establishing a market standard for collateral management in the South African financial markets 16 By Anthony van Eden, Strategic Projects Director, Strate, South Africa

Research round-up Recent market studies into the global collateral challenge 19

ABOUT THE LIQUIDITY ALLIANCE PARTNERS 22 The Liquidity Alliance A global response to the global collateral challenge

The global financial industry is in the midst of a period of unprecedented change as it navigates the aftershocks of the 2007-2008 banking crisis. Adapting to these changes is the biggest challenge financial institutions have faced for a long time.

The advent of new regulations will have adopted by the members of the Liquidity the effect of opening up the global Alliance, an association launched by five industry to even greater competition at the organisations which share a similar approach same time as institutions face increasing to the global collateral challenge. demands on their investment budgets to ensure compliance with the requirements The Liquidity Alliance was established in of the emerging regulatory landscape. In January 2013 by Australian financial market particular, the new regulatory focus on risk infrastructure group ASX, Brazilian central and liquidity management is key in driving securities depository (CSD) Cetip, the the industry need for greater collateral international central securities depository optimisation. (ICSD) and CSD Clearstream, Spanish CSD Iberclear and South African CSD Strate. While every institution has an individual These five market infrastructures have strategy to adjust to the “new normal”, decided to leverage the same collateral cooperation with other market players technology system and to share their is key to finding sustainable competitive expertise, experience and efforts in creating and efficient solutions. This is the strategy a global response to growing demands for sophisticated collateral management.

4 A sustainable solution to combat the global collateral challenge Centre of industry expertise Just the beginning

The Liquidity Alliance members are already The collateral management technology sharing extensive information about trends, behind the Liquidity Alliance delivers a developments and business opportunities white-labelled solution that is unique in in both domestic and international markets. the industry as it enables domestic assets Cooperating in this way is enabling the to remain in custody within the domestic members to identify common customer infrastructure and the domestic jurisdiction. needs and solutions which can be built The Liquidity Alliance is therefore based on into to the award-winning collateral a model that supports local markets to grow management technology each has and develop their collateral management committed to using. services without extracting domestic assets into an external infrastructure or a custodial This system – Clearstream’s Liquidity Hub GO (or “long box”) model. Future phases will (Global Outsourcing) – went live with Cetip extend cross-border collateral mobilisation in 2011 and is being rolled out with the other in real time. Alliance founding members in the course of 2013. Collaboration between the Liquidity The Liquidity Alliance partners are advancing Alliance partners is not only speeding up quickly in their aim of creating a more the development and roll-out but will also efficient global collateral network that will ensure seamless connectivity leading to a help overcome the problem of fragmentation less fragmented global collateral pool. and so enable a more efficient use of available collateral. Additionally, members will encourage the development of informed research so that The liquidity pool will continue to grow as the Liquidity Alliance becomes a trusted more infrastructures choose to adopt this source of pan-industry information, ideas shared collateral management option and and opinions. The fact that the members to join the Liquidity Alliance. In fact, the are from different regions across the world Liquidity Alliance members look forward brings together a unique pool of global to more institutions coming aboard. The insight and expertise. Liquidity Alliance is open for business.

5 THE REGULATORY LANDSCAPE Navigating seismic changes to the world’s financial industry

Politicians and regulators were quick to demand changes to banking procedures after the financial crisis hit in 2008. Risk management became the main priority and an array of new regulations was drafted to ensure more transactions go through houses and an even greater quantity of collateral committed to cover exposures.

Basel III, BCBS-IOSCO and the concepts of A major problem for most institutions is mandatory clearing and account segregation that they do not have adequate systems in globally plus the Capital Requirements place to manage their liquidity and available Directive (CRD) IV and the European Market collateral on a real-time and cross-market Infrastructure Regulation (EMIR) in Europe basis. Complex corporate architecture and and the Dodd-Frank Act in the US are international reach means that the majority increasing the pressure and the demand of institutions are unable to have a global for collateral and this continues to cause view across all their positions and collateral concern in much of the worldwide pools. Even if some institutions have a single financial industry. view, they lack the ability to move the right collateral to the right exposure at the right time.

6 A sustainable solution to combat the global collateral challenge

COLLATERAL BECOMES A TOP PRIORITY institutions which tend to work in a compartmentalised way resulting in One of the most significant outcomes of the fragmented, and thereby immobilised, post-crisis regulation wave is that financial parcels of collateral. institutions – and their clients on the buy- side – will be compelled to set aside more A study carried out by Accenture for capital than in the past. The need for more Clearstream in 2011 (see Research section capital leads to a growing need for more on page 19) estimated that up to 15 % of liquidity and collateral throughout the global available collateral in the banking system banking system. was unused. It concluded that the majority of institutions were unable to have a single In particular, the need for high-quality view of their collateral – a single pool – and collateral management has become a top so were unable to ensure their collateral was priority for banks since the collapse of used in the most cost-effective way. Lehman Brothers in 2008 gave rise to a new era in which interbank trust was Indeed, collateral optimisation is now one of severely diminished and the unsecured the biggest challenges faced by institutions – lending market largely disappeared in financial and, increasingly, non-financial – and much of the industrialised world. more and more are looking to their central securities depository to provide this service. Furthermore, the effect of Dodd-Frank in the US, the European Market Infrastructure A partnership approach Regulation (EMIR) in the European Union plus new capital requirements mean that It is against this background that many institutions, both buy-side and sell-side, of the world’s financial infrastructures must collateralise more of their trades have been looking for specialist partners including exposures in the fast-growing which can provide sophisticated and yet OTC derivatives market. Collateral is king, cost-effective and time-efficient collateral not only now but long into the future. management capability.

Counting the cost of This is the background which has led to collateral inefficiency the foundation of the Liquidity Alliance, an association of five infrastructures which are Many financial institutions have only just using a common collateral management begun to fully appreciate the high cost system. The Liquidity Alliance is open to of inefficient collateral management. The new partners who are interested in joining problem is widespread and exacerbated and thereby increasing the mutual benefits by the globalised operations of many and opportunities open to all participating institutions and their clients.

1F inancial Times (2012) “EU financial reforms could cost EUR 50bn“, 24 June. 7 ASX Collateral: building world-class, globally-connected infrastructure for Australia

By Andrew White, General Manager, Settlement Services, ASX, Australia

September 2012 Bulletin, “at present there is around AUD 240 billion outstanding in Commonwealth Government Securities (CGS), representing around 17 % of GDP and around 9 % of bank assets. Demand for Australian dollar-denominated high-quality liquid assets is likely to increase much faster than the projected increase in the supply of CGS and semi- government securities.”

ASX Group (ASX) is working with Clearstream The objective of ASX Collateral is to provide a to develop a centralised collateral management service to users that will help reduce risk, improve service, ASX Collateral, linked to the financial liquidity and drive efficiency in the Australian market infrastructure in Australia. This service financial markets. It aims to: will facilitate both triparty repo and triparty collateral management. • reduce risk by enabling customers to control their own assets rather than requiring a ASX Collateral will offer its customers a triparty custodial or “long box” solution; repo solution for managing their short‑term • improve liquidity by facilitating in a triparty funding requirements, as well as for obtaining model repo trades that do not currently liquidity. This is important because, occur in a bilateral market (either because of as the Reserve Bank of Australia (RBA) noted in counterparty availability or eligibility); their December 2010 Bulletin, “in Australia, the • drive efficiency by automating currently manual repo market plays an important role in helping processes (mark-to-market, haircuts, margining banks and other financial institutions and so on) and by taking costs out of users’ to accommodate large and variable cash flows, businesses (by substituting cash with other while managing any associated credit risks”. types of collateral).

ASX Collateral will also offer customers a flexible The ASX Collateral service will link to the and scalable way of efficiently optimising the financial market infrastructure within ASX Group: collateralisation of their exposures across a range Austraclear, which is Australia’s settlement system of AUD-denominated financial instruments. As and central securities depository for the wholesale elsewhere in the world, because of increasing debt market; and ASX Settlement (or CHESS), regulatory requirements and generally higher which is a fully electronic securities depository capital costs, Australia’s financial market for equity and equity-related securities. Between participants are focusing on more optimal use the two depositories, the service will potentially of collateral to manage their risk exposures mobilise AUD 2.5 trillion of assets. against other market participants and central counterparties. According to the RBA, in its

8 A sustainable solution to combat the global collateral challenge Sydney Harbour Bridge

The service will be live in July 2013 for Austraclear global customers to the global collateral challenge and in the first half of 2014 for CHESS. Also in the across multiple collateral pools, and by leveraging first half of 2014, ASX plans to extend the service the same Clearstream Liquidity Hub GO collateral to include international assets within Clearstream. management system. Twelve foundation customers have agreed to work with ASX to build the first phase of the By working with Clearstream, ASX is therefore service. These customers represent a range of ensuring that its collateral management solution market participants, including Australia’s central is both world-class and globally-connected. bank, the major domestic banks, and international investment banks and securities lenders. ASX will work with these foundation customers to develop ASX’s OTC Derivatives Clearing Service both the triparty repo and the triparty collateral management aspects of the service. The approach that ASX has taken to its infrastructure in developing ASX Collateral is ASX Collateral will leverage existing technology mirrored in its OTC Derivatives Clearing Service, provided by Clearstream. This will offer customers live for dealer-to-dealer AUD interest rate enhanced operational control through an swaps in July 2013 and for client clearing of automated collateral management solution, those instruments at the end of 2013. There are including a proven asset optimisation algorithm – also key links between ASX’s OTC Derivatives already in use in many overseas markets – which Clearing Service and ASX Collateral. ASX ensures “the right collateral, in the right place, Clear (Futures), the central counterparty for at the right time“. this service, is a foundation customer of ASX Collateral, enabling its clearing participants to The partnership with Clearstream also offers the efficiently collateralise their obligations potential to link to international collateral pools. to the central counterparty. The Liquidity Alliance – the association between ASX, Cetip in Brazil, Clearstream, Iberclear in Spain, and Strate in South Africa – can play a key role in this by providing a global solution for

9 The Liquidity Alliance puts a global spotlight on Brazil’s experience in collateral management

By Wagner Anacleto, Chief Operating Officer, Cetip Securities Unit, Brazil

of investors, etc.) from institutions that centralise the registration of OTC transactions.

Given the mechanisms mentioned above, in terms of transparency, the Brazilian market is – and has been for quite some time – where the main international markets plan to be as soon as the proposed regulatory changes are implemented.

Cetip is responsible for approximately 80 % of the During the 2008/2009 financial crisis, a major OTC derivatives registered in Brazil. Following the international debate began on the need for financial crisis and the regulatory response to it, the greater transparency and adoption of mechanisms company saw opportunities to enhance the benefits to mitigate risks in over-the-counter derivatives it already provides to its participants such as tools transactions, the so-called OTC market. to mitigate the risk of the OTC derivatives market.

The impact of the crisis on the Brazilian OTC The first service identified and implemented was derivatives market was substantially reduced the independent calculation of the mark-to-market owing to the following factors: value of each final beneficiary’s portfolio with a given financial institution on a daily basis. The • Only 10 % of total derivatives registered centralisation and standardisation of registration at the time corresponded to over-the- and identification of the final beneficiary at Cetip counter derivatives and the remaining 90 % made this service possible. For this activity, Cetip were standardised derivatives in a central purchased the licence of the risk management counterparty (CCP) environment. system developed by IBM/Algorithmics. • The registration of all OTC derivative operations has been mandatory since 1994 and must be The second service identified was triparty collateral done with clearing-houses authorised by the management to cover exposures of registered Brazilian Central Bank and CVM, the Brazilian OTC derivatives. Cetip identified potential partners Securities and Exchange Commission. Currently, in North America and Europe with collateral Cetip and BM&FBOVESPA are authorised. management know-how and technology. • The identification of the final beneficiary by the intermediary along with the entities that The next step was to validate with stakeholders perform the OTC derivative registration is also the scope, the necessary functionalities and mandatory and must be done at the time of local market characteristics and particularly the transaction registration (operation closing date). mandatory segregation and control of collateral • Finally, regulators receive files and information at the level of the final beneficiary. Another daily allowing them a complete vision of the prerequisite was Cetip’s maintenance and control market (notional amounts, exposure, identification of the securities eligible as collateral since Cetip

10 A sustainable solution to combat the global collateral challenge Octávio Frias de Oliveira bridge over the Pinheiros river, Sâo Paulo

acts as a central securities depository (CSD). In triparty collateral management product by Cetip other words, Cetip does not transfer the securities in partnership with Clearstream has attracted to the control of another depository for the sake substantial international interest, especially now of managing collateral. that the issue is an especially important industry topic. In late 2011 and in 2012, Clearstream After a series of meetings with potential providers, established partnerships with Australia’s ASX, Cetip decided to partner with Clearstream. Prior Spain’s Iberclear and South Africa’s Strate, to to the product development, both companies develop collateral management solutions. maintained contact with regulators and key players in the local market, receiving a great The partners have been active in exchanging deal of support for both development and information about experiences in their respective implementation of the collateral management markets and found this to be a very valuable system for OTC derivative transactions. exercise. It was from this joint cooperation that the idea for the Liquidity Alliance arose. The triparty collateral management system – named Cetip | Colateral – was implemented Open discussions by the Liquidity Alliance in July 2011, ahead of schedule, in 11 months. partners are helping to identify customer Phase II of the Cetip collateral management demand for collateral management services while project intends to permit the use of international identifying common development needs for the securities deposited at Clearstream to secure collateral management technology. At Cetip, exposures of OTC derivative transactions we are pleased to take part in regular Liquidity registered at Cetip. Alliance meetings and other activities which are encouraging debate and research on collateral Moreover, the project had the added benefit of management. We feel that a global initiative a review of the local legislation which addresses such as the Liquidity Alliance provides the perfect the constitution and perfection of collateral in a platform to address this vital issue. CSD environment. The goal of this review was to provide greater security, agility and cost savings in constituting collateral. The implementation of the

11 Supporting local markets with award-winning collateral management technology

By Stefan Lepp, Member of the Executive Board and Head of Global Securities Financing, Clearstream

allocate available collateral on their own books but our Global Liquidity Hub removed this necessity and introduced a fresh approach with far-reaching implications for the industry.

Liquidity Hub GO (Global Outsourcing) enables an infrastructure to connect to Clearstream’s collateral management system and then offer white-labelled collateral management services to its own clients. This business model delivers some Collateral management has been a very important advantages: hot topic for the financial industry in the last few years but it has been part of Clearstream’s • Clearstream and its local partner – such business for a much longer time. Indeed, we as ASX, Cetip, Iberclear or Strate – develop launched an automated service a customised service that supports the respective back in 1979, the first triparty repo transaction local market infrastructure in becoming a state- in Europe in 1992 and have been developing of-the-art collateral management service provider collateral management products ever since. in a relatively short time and very cost-effectively. Liquidity Alliance partners insource a sophisticated Our journey towards the Liquidity Alliance system that can carry out all the collateral really began over the last decade when identification, allocation optimisation and Clearstream took the decision to develop a substitution irrespective of the target exposure. collateral management system outside its main • Customers do not have to maintain blocked securities settlement and custody processing. buffers of available collateral as the sophisticated This independent collateral management system inventory management system at the heart of delivers real-time services to our worldwide the Global Liquidity Hub allocates collateral only clients through our award-winning Global when needed ensuring greater efficiency and Liquidity Hub. The ability to operate discretely cost-savings. has created a unique advantage as it means • In some markets, domestic assets must remain we can manage collateral – all the necessary in their home jurisdiction. The Liquidity Hub GO allocation, optimisation, substitution and service is governed by local regulation while margining – without the assets being within the Liquidity Alliance partners maintain their Clearstream’s custody. relationship with their underlying customers. • The model seeks to avoid systemic risk since it A good collateral management service must does not transfer all the assets from the local be able to manage inventory to cover specific infrastructures into another institution. Central exposures wherever they are, whether in central bankers, regulators and supervisory boards across counterparties, central securities depositories the globe have expressed interest in and support or banks. Other providers can only identify and for this approach.

12 A sustainable solution to combat the global collateral challenge Grande-Duchesse Charlotte Bridge, Luxembourg

• Membership of the Liquidity Alliance Investor/isf Triparty Survey, Clearstream finished strengthens cooperative and collaborative first, winning the overall table, overall EMEA, partnerships to encourage cross-border trading overall Asia, overall repo and overall securities through Clearstream’s Global Liquidity Hub. lending categories.

Roll-out of the service enables Liquidity Clearstream’s collateral management system Alliance partners to use domestic securities is built on an open architecture principle to cover domestic exposures. The planned which is designed to create the best system for second phase will allow local customers of the its customers and their clients. In turn, the local infrastructure provider to also identify Liquidity Alliance is also open to any financial and mobilise international collateral within market infrastructure that would like to develop Clearstream’s Global Liquidity Hub to cover our common approach to overcoming the their local exposures. collateral challenge.

Further phases will enable domestic assets to cover exposures outside their home country through the local infrastructure provider – for example, to collateralise exposures held at a central counterparty in a different jurisdiction.

The streamlined effectiveness of the Global Liquidity Hub has been recognised through a number of industry awards throughout the years. Recently, in the 2013 Global Custodian Triparty Securities Financing survey, Clearstream’s collateral management and securities lending services in Europe were top-rated for the 13th year in succession and also top-rated in the Global category. In the 2012 Global

13 Collateral management services are now a “must have“ for any service provider wanting to attract assets under custody

By Jesús Benito, Chief Executive Officer, Iberclear, Spain

they risk facing serious financing issues or, at best, could miss out on commercial opportunities. Our participants are clearly conveying this need to us: as they explore all available options for additional financing opportunities, they have increasing needs for collateral management services. Incremental use of central counterparties, additional collateralisation requirements, shortage of high-quality collateral, higher haircuts applied to available collateral … every single trend is In the last few years, the landscape in which pushing in the same direction. European central securities depositories (CSDs) operate has become far more competitive, variable The choice, therefore, was made: Iberclear had and demanding than it used to be. The border to develop its own collateral management between what are considered to be pure domestic services. Customers wanted us to be the collateral activities and what are defined as cross-border manager of the assets they hold in our system services has blurred. Customers are increasingly because this would mean that they maintained requesting a complete range of enhanced services control of their assets through a market neutral from their asset-services provider and this is provider and service. We also believed that something that has been greatly challenging for collateral management services would strengthen providers, such as Iberclear, who were traditionally our global strategy to become a reference CSD in focused on the domestic CSD business. As the new the T2S landscape. regulatory environment is being deployed, our clients want us to provide sophisticated solutions The question then was “how?”. What would be the to match their needs. They also want us to be quick best option for us to become a triparty collateral to market and cost-efficient. management services provider? Developing our own solution would be the most straightforward The cooperation with Clearstream’s Liquidity Hub option, but also a risky one, with high uncertainty GO collateral management outsourcing solution as to what would be the cost, the final outcome has become the perfect match between our needs and its market acceptance. Were we sure we had and those of our customers. There is no doubt the knowledge and the expertise to do it right, that collateral management services have become cost-effectively and quickly enough? Could we a “must have” for any service provider who wants run the risk of spending too much money, or to attract assets under custody. getting there too late, or maybe even ending up by building something that didn’t fully match Whether the much-feared collateral crunch our customer requirements? becomes a reality or not, all market participants are now convinced that they will have to make The second option would be to adapt an existing the most of their available collateral otherwise solution, buying a licence and interfacing it with

14 A sustainable solution to combat the global collateral challenge The Perrault bridge over the river Manzanares, Madrid

our settlement system. But then, what provider been completed and we go live in 2013. We are, should we choose that could guarantee not only in parallel, working with potential users, market a timely implementation but also full market supervisors, and the central bank, to ensure that acceptance and an outstanding quality service? all parties have all the information and are well- And what would be the risks of choosing a system informed by the time of implementation. vendor who may not be fully committed given other industry developments? We are convinced that the best is still to come. We look forward very much to the The third option would be to give up the role implementation of the collateral management of triparty collateral manager entirely and join system and we are sure that our participants will one of the outsourced solutions of other triparty be able to benefit from these services in the near providers. This was out of the question; we didn’t future. We will certainly keep you posted. want to hand over our customers to a competitor.

Clearstream’s Liquidity Hub GO turned out to be the perfect fit for us. Apart from the long history of fruitful cooperation between Clearstream and Iberclear with ventures such as Link Up Markets and REGIS-TR, its proposition comprised all the benefits of the previous options: it was a tested and reliable system, well-known to the industry, with a very good acceptance among our participants. This solution would also allow for a relatively timely and inexpensive implementation. But most of all, this would allow Iberclear to be the collateral manager for its own customers.

So, the decision was clear. And now, after almost a year of hard work, the developments have

15 Establishing a market standard for collateral management in the South African financial markets

By Anthony van Eden, Strategic Projects Director, Strate, South Africa

requirements affecting banks, long-term insurers and the OTC derivatives markets. As we know, upcoming regulation changes will mean that financial markets will need to post more collateral than previously and face a greater frequency of collateral calls, thus squeezing their liquidity reserves further. The South African market has traditionally used mostly cash as collateral and recent studies have highlighted the estimated shortage of cash which will arise in the light of Since its inception almost 15 years ago, Strate the above. Consequently an urgent emphasis has Ltd has been the licensed central securities been placed on using securities as collateral. depository (CSD) for the electronic settlement of financial instruments in South Africa. Its core Partnering with Clearstream brings centralised, purpose is to mitigate risk, bring efficiencies to market-wide integrated collateral management the South African financial markets and improve services that aim to improve the tracking and the country’s profile as an investment destination. efficient use of collateral management in South Strate is aligned to international best practices Africa. The services will automatically manage and continually strives to ensure operational bilateral eligibility criteria, the allocation of excellence and provide enhancements for the the most appropriate securities against open good of the Southern African financial markets. exposures, the administration of the regular intra-day valuation and margin calls, plus the It is an exciting time for these markets as many substitution, optimisation and tracking of all key countries are working on reforms in order collateral placed and received. to encourage growth. South Africa has been an attractive market for some time now and it is Within the South African market, seven financial Strate’s objective to continue to be a key player in institutions have expressed interest as early creating world-class financial developments that adopters of the services. The interaction with the significantly enhance the appeal of the country early adopters has not only enabled Strate to as an investment destination. understand each institution’s requirements, but it has also made inroads into establishing a market Ever since the collapse of Lehman Brothers and standard for collateral management locally. MF Global, the emphasis on risk mitigation and greater transparency has significantly increased. A number of local and international financial institutions have been reassessing their use of collateral to mitigate credit and settlement risk, especially in the light of pending new regulatory

16 A sustainable solution to combat the global collateral challenge The Nelson Mandela Bridge, Johannesburg

Strate’s Collateral Management project is Research into the collateral management arena expected to be rolled out in three phases: in South Africa has shown that there are several fragmented pools in the market, a situation that • Phase 1: A solution for domestic often leads to inefficient use and the inability assets with domestic exposures (launching to optimise collateral. Furthermore, there are November 2013). no standards for collateral operations outside the collateral agreements themselves. Strate’s We will then work with the South African Reserve Collateral Management Services will limit the Bank’s Foreign Exchange Department to explore: extent of any change to market procedures by leveraging the existing processes for securities • Phase 2: The use of domestic assets as collateral movements and, where cash is required for top- against open foreign exposures; and up margin, facilitating the movement through existing settlement practices. • Phase 3: The use of foreign assets as collateral against open domestic exposures.

17 Research

18 A sustainable solution to combat the global collateral challenge Research round-up Recent market studies into the global collateral challenge

Capco: De Nederlandsche Bank: More than ever, collateral The post-crisis world of collateral management is central to and international liquidity regulatory compliance and commercial success Modern communication technology, in combination with the interdependency of Developing in-house collateral management the financial system, has created a situation systems can be high cost but the advantage where financial institutions need to be able gained over competitors in additional to identify and react to a minor liquidity revenue, clients, proactive risk and liquidity problem quickly. Effective collateral and management is significant. Collateral liquidity management enables banks to management provides businesses and clients overcome local liquidity problems with with security and influence on the markets cross-border solutions. not seen before 2008. July 2011 March 2011 www.dnb.nl www.capco.com

19 Finadium: RBA: Central securities depositories FINANCIAL REGULATION AND and the business of collateral AUSTRALIAN DOLLAR LIQUID ASSETS management Given relatively low levels of government The growth of for-profit stock, options and debt in Australia, demand for Australian futures exchanges is creating opportunities dollar-denominated liquid assets has been for central securities depositories to compete increasing relative to supply for some time. with each other and investment banks. A further increase in demand arising from This survey identifies diverging paths for regulatory changes designed to improve expansion in North America, Europe and the management of liquidity risk and Asia and how CSD management services counterparty credit risk will accentuate will be changing. this trend. May 2012 September 2012 www.finadium.com www.rba.gov.au

De Nederlandsche Bank: Accenture: Is collateral becoming scarce? Collateral management - Unlocking the potential in The increased demand for high-quality collateral collateral has prompted fears that it will become scarce. De Nederlandsche Bank Collateral management has become argues that high-quality liquid assets will an integral element of liquidity risk indeed become scarce in relative terms management but most financial institutions and that there is a need to lower risk lack the sophisticated technology required in the financial system. for complex global inventory management. September 2012 This study examines the problems of collateral fragmentation which it argues www.dnb.nl cost the global industry more than EUR 4 billion annually. September 2012 www.clearstream.com

20 A sustainable solution to combat the global collateral challenge Finadium: Oliver Wyman: CCPs and the business of Going secured – trends in collateral management European B2C secured money markets Central counterparties (CCPs) have become increasingly important actors in financial This paper identifies four future system security. This new focus puts higher trends concerning risk mitigation and importance on collateral management diversification: pressure on liquidity and and the risk management associated with capital management, standardised markets it. The report analyses the CCPs and what and secured cash investments, integrated developments the industry expects. treasuries and increased collateral demand. November 2012 It argues that there will be an opportunity for exchanges to open their collateral pools www.finadium.com for wider access. January 2013 Risk: www.oliverwyman.com Collateral management survey 2012

Most insurers have not completely evaluated the implications of a collateral requirements overhaul and are unprepared. While over half of them expect their derivatives use to increase and themselves to participate in the cleared environment, only 13 % expect to have enough assets to meet the collateral requirements. December 2012 www.risk.net

21 ABOUT THE LIQUIDITY ALLIANCE PARTNERS

operations, contributing to the sustainable development of the market and Brazilian society. The company is also Latin America’s largest depository of fixed income securities and Brazil’s ASX Group was created by the merger of the largest private asset . Australian Stock Exchange and the Sydney Futures Exchange in July 2006 and is today one More than 15,000 institutions use Cetip’s of the world’s top-10 listed exchange groups services, including, investment funds; commercial measured by market capitalisation. and investment banks; broker/dealers; lenders; consortiums; leasers and real-estate credit ASX is a multi-asset class, vertically-integrated companies; credit cooperatives and non-resident exchange group whose activities span primary investors; and institutional investors. Millions of and secondary market services, including the individuals benefit each day from the company’s raising, allocation and hedging of capital flows, products and services, such as EFT processing trading and price discovery; central counterparty and bank certificates of deposit, as well as risk transfer; and securities settlement for both registration of time deposits and fixed income the equities and fixed income markets. securities, electronic delivery of the necessary information for contract registration, and liens at ASX functions as a market operator, clearing the departments of transportation. house and payments system facilitator. It also oversees compliance with its operating rules, promotes standards of corporate governance among Australia’s listed companies and helps to educate retail investors. Clearstream is a leading global infrastructure Its diverse range of market service activities are delivering an award-winning integrated services linked by a common commitment to provide product portfolio that includes the issuance, the infrastructure Australia needs to create settlement and custody of securities, Vestima a globally competitive capital market and a – an innovative investment funds service suite – vibrant, robust economy. and a pioneering Global Liquidity Hub providing collateral management and securities lending. The company serves around 2,500 customers in more than 100 countries and delivers customers with access to 53 domestic markets around the world. Clearstream is headquartered in Cetip integrates the financial market. It is a Luxembourg and has offices inD ubai, Dublin, publicly-held company that offers services Frankfurt, Hong Kong, London, New York, Hong related to registration, central securities Kong, Singapore and Tokyo. The company is depository (CSD), trading and settlement of committed to creating smart partnerships with assets and securities. Through technological key infrastructures and institutions around the and infrastructure solutions, it provides world in order to support local markets and liquidity, security and transparency for financial create value for customers.

22 A sustainable solution to combat the global collateral challenge securities depositories ASX (Australia), Cetip (Brazil), Clearstream (Frankfurt / Luxembourg) Iberclear, a BME subsidiary, is the Spanish central and Strate (South Africa). securities depository (CSD) which is in charge of both the register of securities, held in book- entry form, and the clearing and settlement of all trades from the Spanish stock exchanges, the public debt market, the AIAF fixed income Strate is proud to be licensed as South Africa’s market, and Latibex – the Latin American stock Central Securities Depository (CSD) providing exchange denominated in Euros. To achieve post-trade products and services to the financial this, Iberclear uses 2 technical platforms – SCLV markets. As the trusted independent provider of and CADE – which allow participants to benefit innovative post-trade products and services in from technical solutions, such as a high level Africa, Strate offers state-of-the-art technology, of automated procedures and a high grade international expertise and global best practice connection to Iberclear. to the financial markets. Strate provides electronic settlement for securities - including Based in Madrid, Iberclear collaborates in major equity, and derivative products, such as international initiatives in the area of post-trade warrants, Exchange Traded Funds (ETFs), retail services, such as Link Up Markets, a joint venture notes and tracker funds for Africa’s largest stock by ten leading CSDs whose key objective is to exchange, the Johannesburg Stock Exchange improve efficiency and reduce costs of post-trade (JSE), as well as the settlement of money market processing of cross-border securities transactions, securities for the South African market and and REGIS-TR, a trade repository jointly operated equities for the Namibian Stock Exchange. It by BME and Clearstream. Iberclear has links with has recently added Collateral Management other international depositories, from Argentina, Services and new Asset Servicing products to its Brazil, France, Italy and the Netherlands and is portfolio. Strate provides services to issuers for one of the founding members of the Liquidity their investors in terms of the Companies Act Alliance, together with the international (2008) and Financial Markets Act (FMA) (2012).

Contacts

ASX CETIP Clearstream Andrew White Nelson Eduardo Pinto Pereira Gerd Hartung +61 2 9227 0596 +55 11 3111 1904 +49 69 2 11 1 47 04 [email protected] [email protected] [email protected]

Iberclear Strate Teresa Castilla Anthony van Eden 00 34 91 709 52 21 +27 11 795 5300 [email protected] [email protected]

23 June 2013