Act now to leverage the future potential of the Eurosystem Collateral Management System (ECMS)

A use case reflection for credit institutions

The European Central Bank (ECB) introduces the Eurosystem Collateral Management System (ECMS) to unify the management of collateral of National Central Banks across the Eurozone. Standardisation of collateral management in the Eurozone will advance the liquidity and automation potential.

In 2023 the market will focus on extensive development and testing prior to the ECMS go-live. Acting now to prepare readiness will be crucial for credit institutions to ensure a smooth transition to ECMS.

For the planned launch of ECMS in April 2024, Clearstream will be the only Eurozone CSD providing comprehensive triparty collateral management services fully integrated into the ECMS environment and for all Eurozone National Central Banks.

Why efficient central bank access is key for credit institutions?

The market environment calls for financial institutions to optimise the use of scarce resources, particularly under the new market conditions with less accommodative central bank policies.

Central banks play an important role in ensuring sufficient liquidity is available to financial markets

The ECB and the 20 Eurozone National Central Banks (NCBs) comprising the Eurosystem can only provide credit when it is backed up by adequate collateral.

As borrowing has increased over time, both the range and volume of eligible collateral has more than doubled in over a decade. Mobilising global collateral is an increasingly complex process, but vital for efficient liquidity management. Mobilisation of credit claims is also becoming crucial for credit institutions, particularly in the context of collateral shortage. As the pools of ECB eligible collateral have expanded, infrastructures developed new tools and technologies to enable efficient global collateral management.

Innovative solutions have supported the market’s ability to respond quickly in times of crisis and contributed greatly to market stability. For instance, triparty collateral management services were introduced and have been adopted by the Eurosystem.

What is ECMS and how will it impact credit institutions, CSDs and triparty agents?

Each NCB in the Eurozone maintains systems to manage the collateral they receive and the credit lines they grant.

The ECMS is a new platform that will replace the existing collateral management systems of the 20 Eurosystem central banks. By April 2024, ECMS will become the sole system used to manage both collateral and credit in the Eurosystem. An orderly transition is vital to maintaining access to central bank liquidity facilities thereafter.

The launch of ECMS will impact all credit institutions, CSDs and triparty agents such as Clearstream. All existing collateral positions will be migrated to ECMS, highlighting the need for credit institutions to be ready in time to interact with ECMS. Credit institutions will have to prepare their information systems to comply with the ECMS implementation calendar.

The daily treasury management of credit institutions must cope with all the new processing and messaging rules introduced by the Eurosystem. All adaptation needs to be completed during 2023.

The ECMS will support the multi-pooling functionality that allows counterparties to hold collateral pools in multiple locations, giving counterparties flexibility in their global collateral management:

  • Consolidation and mobilisation of all ECB-eligible marketable assets notably through Clearstream’s unique Triparty Collateral Management Services to ECMS
  • Recording at the NCB level with updates to ECMS to provide an accurate overall position for some non-marketable assets, such as certain credit claims

Act now and leverage technologies for a smooth transition 

While the launch date in April 2024 is still some time away, the critical nature of access to the central bank and the big-bang approach mean that preparations should already be underway.

Crucially, users of the ECMS will need to implement and master the workflows required to deliver collateral and request a credit line before launch. At a time where roadmaps are under pressure from a variety of regulatory initiatives, the prospect of adjusting to ECMS can feel especially challenging.

There are several options to facilitate its implementation:

  • For all marketable assets, take full advantage of Clearstream’s custody, settlement and Triparty Collateral Management Services to easily comply with ECMS.
  • While Clearstream will comply with new ECMS standards, credit institutions will also be in a position to reuse assets received as collateral receiver in most other triparty agreements.
  • The ECMS access platform named EASY Collateral provides a digital and cloud-based plug and play monitoring tool that can support market players to deal with their legacy systems while taking full advantage of technology evolutions and easily comply with new standards.

EASY Collateral, provided by the authors of ECMS, is a digital, SaaS turnkey solution that relies on the same parameters used by ECMS for collateral assessment in terms of eligibility, valuation, and messaging.

Clearstream and VERMEG, the developers of EASY Collateral have announced their partnership to offer banks the possibility to have on the same platform the best-in-class solutions to optimise and mobilise marketable assets and credit claims.

The partnership allows Clearstream to pass on ECMS’s benefits directly to customers enabling them to leverage the enhanced collateral management capabilities as of day 1 of ECMS.

How credit institutions benefit from the unique Clearstream and EASY Collateral STP triparty collateral management solution

  • Real-time view of your pool of collateral and your exposure as integrated with ECMS.
  • Receive real-time information about all the alerts affecting your inventory and pool of mobilised collateral.
  • Automatically obtain the proportion and list of valued eligible assets in your inventory through bilateral and Clearstream triparty collateral management transactions.
  • Elevate your collateral allocation efficiency with the automated Optimal Allocation Assistant including Clearstream triparty credit.
  • Mobilise and immobilise assets in a flash and let the tool generate the relevant ready-to-send ISO 20022 messages to ECMS or the relevant messages to Clearstream’s Triparty Collateral Management Services.
  • Comply with the new framework to mobilise credit claims (Registration and Mobilisation).
  • Enjoy a new, digitalised collateral management experience with an innovative UX.