BIS: Developments in collateral management services

A new report from the Bank for International Settlements

Motivated by expected increases in demand for collateral stemming from regulatory changes and a greater preference for secured transactions, collateral management service providers are evolving their service offerings in an effort to improve efficiencies and enable market participants to meet collateral demands with existing and available securities. This report takes stock of the existing range of collateral management services as well as what innovation is under way to respond to the higher demands for collateral, and considers any increased or new settlement-related risks as a result of the innovation and evolving services.

The movement of securities and settlement of transactions for current and planned collateral management services rely heavily on existing clearing and settlement infrastructure. As a result, the report does not identify new settlement-related risks as such. However, the proposed services do have the potential to create large networks of dependencies and interconnections among financial market infrastructures and custodian banks active in providing collateral management services. Both the public and the private sector need to understand, monitor and appropriately manage the associated risks as innovations in collateral management services are introduced, and partnerships and operational connections are established, implemented and used.

The services described herein represent a point-in-time snapshot of an evolving landscape. Moreover, the implications of the potential benefits and risks identified are largely dependent on how the landscape of collateral management services develops and evolves. Collateral demand and supply factors also remain in flux, and the future equilibrium, including the degree of dependence on existing and new collateral management services, is difficult to predict at this time. On that basis, the Committee on Payments and Market Infrastructures (CPMI) will continue to monitor developments in collateral management services and coordinate with other public sector bodies, as appropriate.

The report has been prepared for the CPMI by the Working Group on Developments in Collateral Management Services. The CPMI is very grateful to the members of the working group for preparing this report.

The report is available here.

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