Central Securities Depositories and the Business of Collateral Management: A Finadium Survey
Finadium
May 2012
Central Securities Depositories (CSDs) have traditionally focused on the business of custody as background utilities in financial markets. But with the growth of for-profit stock, options and futures exchanges, CSDs are now evaluating their commercial opportunities. This is an important change in how financial markets work and brings CSDs into direct competition with both each other and major investment banks.
One of the most attractive new areas for CSDs to pursue is agency collateral management. This requires the ability to manage and post assets under custody as collateral across a variety of Central Counterparties (CCPs) and bilateral market participants. While many CSDs run CCPs themselves, the CCP portion of their collateral management activities is conducted as principal, not agent. Expanding into the agency role is a logical extension of current capabilities and reporting. New regulations encouraging the use of CCPs for OTC derivatives, repo and other products are spurring CSDs along in their evolution towards providing these additional offerings.
This report evaluates the current state of Central Securities Depositories in the agency collateral management market and their prospects for future development. We present the findings of a proprietary survey we conducted in March and April 2012 with 17 CSDs worldwide, including those who were partnering to launch collateral management businesses and those who were going alone. We consider divergent paths in North America, Europe and Asia, and what product areas, eligible collateral and specific services CSDs are currently offering or plan to offer before the end of 2013 in the collateral management space. Lastly, we look at how CSDs will define best practices for agency collateral management as opposed to the definitions offered by banks with their own tri-party collateral management services.
This report should be read by market professionals at CSDs and by those needing the services of CSDs. The report will also benefit product development professionals looking to understand how to do business with CSDs.
This report is 24 pages with 7 exhibits.
TABLE OF CONTENTS
■ Executive Summary
■ The Role of Central Securities Depositories in Financial Markets
– Methodology
■ Product Areas and Eligible Assets
■ Core Functionalities
■ Business, Market and Regulatory Factors
– Internal Development or Outsourcing
– Market Acceptance
– Assessing the Competition
– Regulatory Impact
■ Future Developments
■ About the Author
■ About Finadium