DTCC-Euroclear move on global collateral processing
Euroclear chief executive Tim Howell and DTCC president and chief executive Michael Bodson confirm the joint venture at Sibos
The Depository Trust & Clearing Corporation (DTCC) and Euroclear have taken the first steps towards the creation of a global collateral processing utility with the announcement that they plan to create a UK-based joint venture, DTCC-Euroclear Global Collateral.
The joint venture will have open architecture services to allow access for other central securities depositories, custodians and settlement agents that are expected to connect to the utility later.
“In the new regulatory world, the demand for collateral because of OTC clearing for basic risk management has gone up tremendously, which creates an operational pressure on firms and the need to locate and move collateral around and take out the operational risk and frictional cost,” said Michael Bodson, DTCC president and chief executive (pictured above right with Euroclear’s CEO Tim Howell). “Margin call numbers are rising, especially in periods of stress, when they can go up by ten times, so the operational risk and therefore the credit risk creates the need to take collateral and seamlessly move it around the world.”
The pair has been talking about the ventuure for the past year and expects to begin testing of the first stage, a Margin Transit Utility (MTU). The MTU will provide straight-through processing of margin obligation settlement, using existing DTCC infrastructure, by mid-2015. The second part of the development is a Collateral Management Utility (CMU) that will use Euroclear’s Collateral Highway.
“The MTU is in essence a messaging hub that will allow everyone to exchange information in a standardised way throughout the industry – on the buy-side, the sell-side, futures commission merchants, central counterparties, custodians – while the MCU is about transatlantic movement of collateral between Euroclear, us and others,” said Bodson.
Bodson said it made sense for the two industry-owned utilities to work together rather than duplicate efforts. “When we started to look at these needs, instead of both of us separately investing in both pieces and fragmenting the infrastructure, it became pretty apparent that there was power in connecting the two pieces. We’ve talked a lot about the need for industry utilities to simply collaborate and try to come up with the best solution,” said Bodson. “The next phase will be to get more parties involved so that we can move as much collateral as possible.”
DTCC-Euroclear Global Collateral will be owned equally between DTCC and Euroclear with its board and senior executives drawn from both firms. Euroclear’s head of corporate technology, Michael Shipton, becomes chief executive of the new company, with Mark Jennis, DTCC’s managing director, strategy and business development, taking the role of executive chairman. The board will include Euroclear’s Jo Van de Velde, head of product management and Mei Li Powell, head of communications, marketing and CSR. Other members are DTCC’s Peter Axilrod, head of corporate strategy and business development and Andrew Douglas, head of government relations for Europe and Asia.
