COLLATERAL MANAGEMENT The next generation

Stiffer international liquidity requirements have pushed most major global financial institutions to adopt a more organised and centralised approach to collateral management. In addition, securities such as equities and bonds are becoming more prevalent as a form of collateral as opposed to cash.

The downside to cash is that it is reused and lent out, which means it can be difficult to track if not specifically segregated, says Anthony van Eden, strategic projects director at Strate, the SA central securities depository (CSD). Along with Clearstream, the CSD of the Deutsche Börse Group, Strate recently launched a centralised collateral management service in SA. Some of SA’s largest financial institutions and the JSE have committed to exploring the use of these services to better mitigate operational and credit risk.

Stefan Lepp, head of global securities financing at Clearstream, says that collateral has become a very scarce resource and finding good quality collateral is increasingly expensive following the subprime crash and collapse of Lehman Brothers. “The service looks to manage collateral holdings and exposures more efficiently to provide markets with access to much-needed liquidity.

“More transactions need to be collateralised due to a lack of trust between banks,” Lepp adds.

Basel 3 and Solvency 2 are aimed at protecting financial markets from systemic risk and have placed pressure on the availability and funding costs of high-quality liquid assets.

“The drive from regulators to increase bank capital and liquidity is substantially increasing