Global Liquidity Hub services in support of OTC derivatives

Around the world, upcoming regulations such as EMIR and Dodd-Frank are imposing stringent clearing and margining requirements on OTC derivatives which will have a major impact on sellside and buyside customers. Clearstream’s Global Liquidity Hub offers services for both cleared and uncleared OTC derivatives from a single collateral pool, including the collateral exchange of initial and variation margin.

Most market participants will be affected by these regulatory changes. Whereas sellside 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, buyside institutions might face an overhaul of entire business lines. This makes it attractive to outsource all collateral aspects of margining activities to triparty agents such as Clearstream instead of developing costly in-house solutions.

Collateralisation of uncleared trades

The upcoming regulations introduce additional margin requirements on uncleared derivatives to reduce systemic risk. In addition to posting variation margin, counterparties will be required to exchange two-way initial margin on a non-netted basis. These requirements will be phased in from September 2016 onwards, depending on the size of average aggregate notional amount of uncleared derivatives. The new rules are first being implemented in the US and Japan, followed by the EU, Switzerland, Singapore, Hong Kong and Australia in early 2017.

The collateral needed for meeting the initial margin must be segregated at a non-affiliated third party custodian or triparty agent such as Clearstream. For uncleared derivatives, the bilateral collateral management of variation margins is provided by the OTC Collateral service while the initial margin segregation and management is covered by the triparty services under the Global Liquidity Hub.

Collateralisation of cleared trades

Mandatory clearing of standard OTC derivative contracts is currently being phased in around the world. Customers can choose Clearstream’s triparty collateral management services for meeting their CCP margin requirements at leading clearing houses. Customers will also benefit from collateral optimisation and transformation services to source the necessary high-quality liquid assets for CCP margining.

Clearstream’s Global Liquidity Hub is a one-stop shop for the collateral management of OTC derivatives in the new regulatory environment.  Margin management services include bilateral collateral management for variation margining for uncleared derivatives and triparty services for the segregation and management of initial margining for both cleared and uncleared derivatives. Customers can leverage their existing collateral account at Clearstream to meet these regulatory requirements with minimum operational impact and in a cost-efficient manner.