Central Securities Depositories and the Evolution of Collateral Management
Finadium
April 2015
Since 2012, Central Securities Depositories (CSDs) have followed through on promises to build collateral management services worldwide. CSDs are now strong voices in the collateral management conversation as tri-party agents, collateral movers and educators. These behaviors have implications not just for users of CSD collateral management services, who may be moving from bilateral or non-CSD tri-party transactions, but also for banks, regulators and asset managers who need to understand what CSDs offer and what that means for their own activities.
CSDs themselves have not changed their core services much over the last three years, but public perception has shifted from considering CSDs safe suppliers of settlement and custody to potentially risky pieces of financial infrastructure. IOSCO, the Financial Stability Board and the Basel Committee on Banking Supervision now recommend that domestic regulators assess CSD risk according to the CPSS-IOSCO document “Principles of financial market infrastructures”, as well as a number of other follow-up publications. Like it or not, CSDs are in the public eye. Their increasing relevance in collateral management makes them all the more conspicuous.
This survey is an update to our 2012 survey of CSDs, and considers not just the current business activities of CSDs in collateral management but their evolution as well. The survey finds that CSDs did in fact deliver on their planning of three years ago with an expansion of services across bilateral and centrally cleared products, a greater acceptance of collateral types and more functionality as a hub of collateral movements. This outcome was not limited to the major CSDs in Europe, but extended globally. This year’s survey explores business considerations in CSD collateral management activities including partnerships, competition, intraday liquidity provision and level of market acceptance of their offerings.
This report should be read by Central Securities Depositories looking to benchmark their progress, by current and potential users of CSD collateral management services, and by banks and asset managers whose business models may be enhanced or disrupted by new CSD activities.
This report is 30 pages with 14 exhibits.
TABLE OF CONTENTS
■ Executive Summary
■ Why Focus on Central Securities Depositories
in Collateral Management
– Changes in CSD Service Offerings Since 2012
– Methodology
■ Product Areas and Eligible Assets
■ Core Functionalities
■ Business, Market and Regulatory Factors
– Internal Development or Outsourcing
– Intraday Funding
– Tri-Party, Quad-Party, Margin Pledges and Title Transfer
– Market Acceptance
– Regulations
■ Competition, Partnerships, and Whose Clients Are Whose?
■ About the Author
■ About Finadium