Euroclear Bank and Citi are to jointly launch a triparty collateral management arrangement that makes the assets held at Citi for mutual clients available for use as collateral through Euroclear’s triparty services.
As a result, equity and fixed-income positions held within Citi’s proprietary custody network will become eligible assets to be used as collateral when Euroclear serves as the triparty agent and manages the collateralisation process. Euroclear said that clients will benefit from greater interoperability and choice as to where they finance and custody their assets. Citi will continue to hold the assets as custodian, while the securities move across markets and time zones via Euroclear’s global ‘Collateral Highway’.
Citi is also understood to be working with ClearStream in a similar triparty collateral union solution, taking advantage of the clearers' Liquidity Hub Connect services.
Mutual clients will be able to use the assets deposited with both entities as collateral in real time, thereby maximising collateral flexibility and optimisation through a seamless process. According to Euroclear, the new offering is particularly relevant against the backdrop of increased risks related to counterparty exposures and the greater need for collateral associated with new regulatory requirements.
The alliance will boost the pool of potential collateral that can be used to cover exposures arising from a wide variety of transactions, such as repurchase agreements (repos), loans, derivatives, central counterparty clearing (CCP) margins and central bank liquidity via Euroclear’s global Collateral Highway. The potential pool of collateral held by Euroclear, at the equivalent of € 23 trillion, together with the assets held within Citi’s proprietary direct clearing and custody network spanning over 60 countries, is very significant.
“The joint initiative is a significant market development, with the aim of delivering meaningful client benefits at a time when collateral is in greater demand than ever,” said Euroclear’s chairman, Frederic Hannequart.
“Together, Citi and Euroclear Bank will help our clients better manage counterparty exposures, ease access to liquidity and make more effective use of their assets as collateral, while alleviating the challenges of collateral fragmentation.”
Sanjiv Sawhney, Europe, Middle East and Africa (EMEA) head of securities and fund services at Citi, added: “The alliance with Euroclear Bank gives our clients seamless and instant access to the services of a leading triparty agent. As a result, the assets they deposit with Citi can be considered part of the inventory of securities that can be used to fulfil collateral requirements in triparty-managed deals.”