Global custodian BNP Paribas Securities Services (BNP Paribas) and Euroclear Bank have jointly launched a tri-party collateral management service via Euroclear’s Collateral Highway service, which enables mutual clients to access securities held at BNP Paribas Securities Services as collateral for tri-party operations, conducted by Euroclear Bank.
The two banks first entered into a collaboration agreement in 2012 and have worked together to develop the initiative to support clients in sourcing securities to meet their growing collateral needs, driven on by market and regulatory initiatives like the Basel III capital adequacy regime. High demand, stricter risk management practices and new regulations are all increasing the need for more collateral at a time when high-grade collateral is increasingly difficult to source easily, creating a collateral scarcity gap.
“This partnership is particularly timely and important as demand for collateral continues to increase,” said Frederic Hannequart, Euroclear Bank’s chairman. “By joining forces, we alleviate one of the challenges of collateral fragmentation by making the transfer of collateral to the right place at the right time as seamless and operationally simple as possible.
The BNP Paribas/Euroclear Bank collateral transfer arrangement aims to ensure that mutual clients of both institutions achieve greater risk protection and manage their available assets more efficiently. In this collaboration, securities held in local custody with BNP Paribas may be used as collateral in tri-party collateral management deals managed by Euroclear Bank. The Euroclear Collateral Highway is available to other banks as well.
Alain Pochet, head of clearing, settlement and custody at BNP Paribas Securities Services, added: “This is a major achievement for both parties, and comes at a very appropriate timing for our clients who face significant regulatory changes.
“The first trade completed through this partnership was executed in the Spanish market. It allowed our mutual client to use available securities held with BNP Paribas Securities Madrid as collateral for the tri-party transaction administered by Euroclear Bank.”
The two parties are currently working to extend the scope of the arrangement to the main European and Asian markets.