Clearstream Insights: What’s new in securities financing?


Tilman Fechter, Member of the Executive Board of Clearstream Banking AG and responsible for the Banking, Funding & Financing business, speaks about intraday liquidity, initial margin segregation, and the need for collateral mobility. 

Tilman, what is at the top of the agenda for financial institutions these days?

I see four central topics in the industry right now: First, intraday liquidity and intraday credit. Second, collateral mobility; then balance sheet netting and optimisation, and last but not least regulatory topics like uncleared margin requirements (UMR)/Initial Margin Segregation and SFTR.  

Liquidity is certainly key. How can Clearstream help here?

Currently, the majority of the market is trading at general collateral levels (GC) and there are very few specials traded. The high liquidity in GC beats prices down for “standard products” such as German Bunds or Italian BTPs. In addition to these, we also offer more diverse instruments: with Clearstream’s strategic lending programme, ASLplus, customers can access our large and diverse pool of fixed income. To satisfy the growing demand for specific instruments, we are adding more and more corporate bonds and US-American USTs to our programme – and will also add a few more equity markets going forward. 

Another major topic is collateral mobility. What can customers expect? 

What is most in demand here is our central liquidity pool. By using our cash, credit and liquidity facilities, customers can move their collateral easily to where it is needed, across jurisdictions or settlement locations. Also, we see a lot more re-use of collateral. If you for example receive collateral from secure and unanimous funding in GC-Pooling, you can re-use it for certain other transactions. That increases efficiency and minimises costs for the market participants. 

What is new in terms of banking and credit services?

Our customers have to fulfil several netting requirements regarding accounting standards. We support them with our new offering: to reduce capital requirement efforts and to optimise their balance sheet, they can benefit from balance sheet netting solution across our financing and funding products (i.e. specials repo vs. GC-Pooling) – be it in the ICSD in Commercial Bank Money or in T2S/CSD in Central Bank Money.

Phase 4 of the Initial Margin Segregation is to be implemented in September. Are we and our customers in a good shape?

Yes. Most players are reviewing their counterparts and also use this as a “clean-up exercise” to optimise their customer relations. We are putting special focus on the customer onboarding compliance and operational set-up project to ensure all our customers and most of their counterparts have access to our facilities by September. This is not a small effort: we have to achieve that for the same number of customers as in the previous three phases combined. However, I am glad to say that we are right on track here. The business has been growing significantly since the previous phase implementation and we foresee it to double by end of year. 

What about the Securities Financing Transactions Regulation (SFTR)? 

We are trying to make our clients’ life as easy as possible. SFTR allows delegation, where either one counterparty can delegate their reporting to the other counterparty of the securities financing transaction (SFT); or a counterparty to an SFT may delegate their reporting to another involved entity – for example Clearstream as the securities lending provider. We will offer both forms within our delegation service to support our clients to meet their reporting requirements.

Deutsche Börse Group is developing a blockchain-based solution for collateral swaps in the securities lending market together with fintech HQLAx. Next to Clearstream, Euroclear is joining as custodian. Any more to come? 

Yes, I am sure we will see some more participants joining soon. Market participants have to make sure that their high-quality liquid assets (HQLAs) are in the right place at the right time, taking into consideration market ratios like qualifying liquid resources (QLR) and liquidity coverage ratio (LCR). The blockchain-based solution by Deutsche Börse and HQLAx addresses a market need – investor banks really want to see the platform live on the market and their respective collateral agents and custodians are also joining the solution. I am confident we will see it in production in late summer this year.