Global Liquidity Hub services in support of OTC derivatives
Around the world, regulations such as EMIR and Dodd-Frank impose stringent clearing and margining requirements on OTC derivatives causing major operational and liquidity impact on sell- and buy side 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 are 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 are facing 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 regulations across multi-jurisdictions introduced additional margin requirements on uncleared derivatives to reduce systemic risk. In addition to posting variation margin, counterparties are asked to exchange two-way initial margin on a non-netted basis. These requirements are phased in as of September 2016 and shall continue until September 2021, depending on the size of average aggregate notional amount of uncleared derivatives. The new rules are primarily implemented in the US and Japan, followed by the EU, Switzerland, Singapore, Hong Kong and Australia and more to come.
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 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.