LME Clear announced it’s launched a new triparty member margin collateral service provided by Euroclear. Under the triparty arrangement, members will be able to hold a wider range of assets than current bilateral eligibility allows.
The introduction of a triparty agent reduces the complexity and costs of managing the collateral they hold with LME Clear to meet margin requirements. Currently, when required to provide securities as collateral to LME Clear, members transfer individual securities directly from their account into LME Clear’s collateral account. This entails a member selecting which securities to transfer, processing instructions for each settlement and facing instruction and settlement costs for each security that is transferred.
In future, members will be able to hold securities with Euroclear through the triparty service and give a single instruction for Euroclear to transfer multiple securities to LME Clear to meet margin requirements. All the administration will be handled by Euroclear which will ensure that members’ securities are optimized and used efficiently.
The triparty service will make it easier for LME Clear to introduce new categories or issuers of securities as acceptable collateral. It has enabled LME Clear to now accept eligible collateral from an additional nine new issuers, as well as including US and UK Inflation Linked Bonds as eligible, where the securities are held by Euroclear as the triparty agent.
Barry Gethin, LME Clear’s head of Collateral and Liquidity Services said in a statement: “Introducing a triparty service will allow members to reduce their operational burden and make optimal choices about the securities they provide as collateral. In addition, it opens the door to members holding a wider range of securities as acceptable collateral. We will continue to deliver enhancements to our collateral service to benefit our marketplace.”
Sara Cescutti, chief commercial officer for EMEA Euroclear, said in a statement: “This new initiative highlights the vital role we play in supporting clients and other market infrastructures to optimize collateral allocation, minimize settlement fails, and reduce credit usage – ultimately contributing to greater market efficiency.”
LME Clear has also confirmed that it will be making changes to the way that offshore renminbi (CNH) can be held as eligible cash collateral. Applicable from 1 November, changes to the interest paid on CNH held as collateral are intended to make it a more attractive option for clearing members as part of a renewed focus on the CNH collateral service.