Galen Stops looks at the collateral requirements in the world of OTC clearing and warns that the most exposed firms could be the least prepared.
As the deadline to clear swaps creeps inexorably closer,
firms will have to change the way they manage collateral in the
new regulatory environment. However, concerns are rising that
those most exposed to the changes are the least prepared.
The OTC clearing mandate will significantly increase demand
in the market for high grade collateral that will be accepted
by CCPs and this will in turn mean that there will be an
increase in cost to access such collateral.
Commenting on this increased demand Saheed Awan,
global head of collateral management services at Euroclear Bank
said: "Many financial firms will be impacted by the new
centrally-cleared world. While estimates vary wildly in regards
to how much extra collateral is needed, I would argue that the
collateral is available, but it is currently stuck in silos in
different parts of the world and across firms' different
"The buy-side are looking at their global custodians to work
closely with capital market infrastructure providers like
Euroclear Bank to unlock these collateral silos and optimise
the buy-side firm's entire portfolio."
Awan highlighted costs such as the interfaces that need
building for the clearing house, upgrading or outsourcing
collateral management services, accessing more high quality
collateral and the passed-down costs of the clearing house fees
themselves as new expenditures for buy-side firms.
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