Euroclear Bank and Citi announce today that together they will launch a triparty collateral management arrangement that makes the assets held at Citi for mutual clients available for use as collateral through the triparty services of Euroclear Bank.
As a result, equity and fixed-income positions held within Citi’s proprietary custody network will become eligible assets to be used as collateral when Euroclear Bank serves as the triparty agent and manages the collateralisation process. Clients will benefit from greater interoperability and choice as to where they finance and custody their assets. Citi will continue to hold the assets as custodian, while the securities move across markets and time zones via Euroclear’s global “Collateral Highway”.
Mutual clients will be able to use the assets deposited with both entities as collateral in real time, thereby maximising collateral flexibility and optimisation through a seamless process. This offering is particularly relevant against the backdrop of increased risks related to counterparty exposures and the greater need for collateral associated with new regulatory requirements.
The alliance will boost the pool of potential collateral that can be used to cover exposures arising from a wide variety of transactions, such as repos, loans, derivatives, CCP margins and central bank liquidity via Euroclear’s global Collateral Highway. The potential pool of collateral held by Euroclear Bank, at the equivalent of EUR 23 trillion, together with the assets held within Citi’s proprietary Direct Clearing and Custody network spanning over 60 countries is very significant.
Frederic Hannequart, Chairman of Euroclear Bank, said: “The joint initiative is a significant market development, with the aim of delivering meaningful client benefits at a time when collateral is in greater demand than ever. Together, Citi and Euroclear Bank will help our clients better manage counterparty exposures, ease access to liquidity and make more effective use of their assets as collateral, while alleviating the challenges of collateral fragmentation. We are delighted to be partnering with Citi to launch such a timely, client-driven collateral sourcing agreement which will extend further the reach of our Collateral Highway.”
Sanjiv Sawhney, EMEA Head of Securities and Fund Servicesat Citi, commented: “The alliance with Euroclear Bank gives our clients seamless and instant access to the services of a leading triparty agent. As a result, the assets they deposit with Citi can be considered part of the inventory of securities that can be used to fulfil collateral requirements in triparty-managed deals. This solution further demonstrates Citi’s commitment to developing an open architecture which allows our clients to access liquidity pools seamlessly and eliminate collateral fragmentation, thereby creating significant efficiency gains. We are pleased to take the lead in offering such an arrangement with Euroclear Bank to our clients.”
At Euroclear Bank, the agreement with Citi builds on the growing demand for triparty collateral management services, as evidenced by its 30% growth rate over the past year. Euroclear’s global Collateral Highway is the first fully open global market infrastructure to source and mobilise collateral across borders. The entry points are where collateral will be sourced from all Euroclear central securities depositories (CSDs), agent banks like Citi, clearers and CSDs located in any time zone. The securities are transported to where they are needed as collateral. The Collateral Highway is open to all CCPs, CSDs, central banks, global and local custodians, investment and commercial banks. Custodians, agent banks and CSDs without a collateral management service offering will be able to use the Collateral Highway as their own for their domestic clients.