Global Securities Financing: ASL principal: New fails lending service for T2S and ICSD settlement
As part of the Clearstream Banking’s1 mid-year release, effective
3 July 2017
a new fails lending service “ASL principal” will be offered by CBL.
This harmonised securities lending service will be rolled out in parallel with the overall TARGET2-Securities (T2S) implementation and the T2S market coverage of CBF in Germany. In addition to German assets, customers will eventually be able to pool Belgian, French, Dutch, Austrian, Italian and Spanish assets at CBF.
The key features of this new service include:
- An automated securities lending service for CBL customers who will be able to use their CBL and CBF accounts as source or destination accounts;
- A service that supports settlement efficiency in T2S and that is also available to CBL borrowers for their CBL settlement efficiency; and
- A principal model with CBL acting as the sole legal counterparty towards lender and borrower.
ASL principal is fully automated and as with all Clearstream’s Lending and Borrowing programmes, Clearstream manages all operational and administrative processes, including the management of collateral.
Key benefits for borrowers
Borrowers can note an improved settlement process to help avoid settlement failure penalties and a broad supply of liquidity as follows:
- A unique T2S auto-borrow service as a perfect tool to mitigate the risk of CSDR mandatory buy-ins (new regulatory requirement);
- Reductions to the risk of settlement failures in T2S and in Creation. Borrowers are able to settle trades that would otherwise fail; and
- Access to a large and diverse pool of lendable securities, via a single legal relationship with CBL.
Key benefits for lenders
Lenders may realise full portfolio yield with low risk as follows:
- Auto-lend increases portfolio revenue and minimises costs as custody fees are waived on lent positions;
- There is reduced risk due to AA rated CBL acting as the principal counterparty, plus all loans are fully collateralised (collateral quality and sufficiency are monitored daily by Clearstream International, acting as Collateral Agent); and
- Legal simplification with CBL acting as sole legal counterparty towards the lender, who can access both ASLplus and ASL principal through one unique legal contract.
Customers will be able to benefit from harmonised collateral management systems of Clearstream (OneCMS) that will manage the customers’ entire collateral pool across Clearstream Banking, resulting in an optimised use of collateral across locations and in enhanced liquidity management for both:
- Triparty activities handled by Clearstream; and
- Assets’ allocations (assets held in the local CSD can be used as collateral in the ICSD), automatic collateral allocation and return, automatic collateral substitution.
In addition, the pooling of securities collateral across T2S markets will facilitate optimal use of assets.
Harmonisation and consolidation of the security settlement in Central Bank money of 23 European CSDs in T2S with CBF as a single gateway for Clearstream. Ancillary services, such as securities lending, are outside the scope of T2S and are to be offered by CSDs directly to their participants.
A version of the ASL Programme Product Guide, detailing the new service features will be available in due course under Key Documents / ICSD / Global Securities Financing / ASL Product Guide.
If you are interested in further information about any of our Global Securities Financing solutions, please contact our dedicated GSF team:
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1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking Frankfurt (CBF) customers using CreationOnline), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.