Euroclear and The Depository Trust & Clearing Corporation (DTCC), two of the largest settlement firms, said their respective boards have given the go-ahead for final negotiations towards establishing a joint venture (JV) to deliver a collateral processing infrastructure.
Both Euroclear and DTCC are industry owned and governed, and the two firms said they will collaborate with market participants as solutions are developed, for an infrastructure that leverages and integrates their respective capabilities and efforts.
The JV will initially focus on launching a margin transit utility (MTU) that will provide straight through processing (STP) to the settlement of margin obligations, and on piloting a collateral management utility (CMU) to address the pressing problem of sub-optimal collateral mobility and allocation at a global level.
The MTU service, which has already received significant interest from the industry, will leverage development work being undertaken by DTCC and the CMU pilot will leverage current Euroclear technology. When fully operational, the utilities will be integrated to provide a seamless front-to-back collateral processing platform.
The JV will operate open architecture services, where DTCC’s and Euroclear’s settlement platforms represent two of many linked settlement locations. The intention is to extend access to other interested settlement platforms such as central securities depositories, custodians and settlement agents.
“We are delighted to be partnering with DTCC on this important evolution of the post-trade industry,” said Tim Howell, chief executive officer (CEO) of Euroclear. “In bringing together two of the industry’s largest post-trade market infrastructures, we will be addressing sub-optimal collateral mobility and allocation issues by creating the biggest open architecture collateral processing ecosystem, accessible to all market participants across the globe.
“By delivering tangible benefits to the industry, we will improve efficiency and mitigate risks at a time when regulatory change is expected to significantly increase the volume of margin calls and securities collateral settlement.”
Michael C. Bodson, president & CEO of DTCC added: “Collateral processing continues to become more complex, with margin calls expected to rise steeply and the need to seamlessly integrate collateral and spot market settlements similarly increasing. Firms are actively looking for global solutions to solve these issues.”
Consummation of the JV is subject to several conditions, including completion of definitive documentation, final approval from the boards and receipt of any necessary regulatory approvals.
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