October 5, 2017 / 1:18 PM / 12 days ago

BNPP launches triparty collateral platform

LONDON, Oct 5 (IFR) - BNP Paribas Securities Services has launched a triparty collateral management platform, becoming the first new entrant in the US$6trn market for almost two decades.

The platform, which connects buyside firms, sellside firms and central counterparty clearinghouses, aims to ease the circulation of assets and expand the range of securities that can be used to back trades, as new over-the-counter derivatives regulations increase collateral demands.

“Our objective is to create a community of collateral takers and collateral givers to develop a comprehensive pool of liquidity and remove bottlenecks in the sourcing of collateral,” said Patrick Colle, general manager of BNP Paribas Securities Services.

Increased collateral requirements under Dodd-Frank and the European Market Infrastructure Regulation have pushed buyside firms to securities financing transactions such as repo and securities lending, where they can source cash and high quality liquid securities to post at CCPs. In addition, sellside firms require more efficient use of their securities collateral and access to new liquidity providers, including buyside firms, to meet their collateral needs.

As a custodian with US$10trn in assets under management, the new platform allows BNPP to handle its clients’ collateral needs, from net exposure calculation and substitution to physical settlement and custody of those assets.

“Our solution makes the most of our extensive custody network to enable us to mobilise collateral quickly and securely, when and where it is needed,” said Helene Virello, global head of collateral and valuation services at BNPP Securities Services.

A global strategy implemented in 2010 was seen as a precursor for the development of a platform that could compete with incumbent providers. The seven-year project began with the creation of an underlying custody infrastructure, but recent technological advancements were crucial in shifting the focus to the triparty platform.

“Thanks to the revolution in technology, we’ve been able to build this platform in 18 months and to come up with a big leap in terms of a technology-driven competitive advantage for our users,” said Colle.

He highlighted flexible algorithms that permit users to set parameters for optimal allocation of collateral and visualisation tools that allow users to monitor collateral needs in real time. The platform also offers same-day settlement of transactions.

COMPETITIVE ADVANTAGE In a market dominated by large international central securities depositories, such as EuroClear and Clearstream, as well BNY Mellon and JP Morgan, Colle said the BNPP Securities Services model, which combines multi-local and global capabilities, will prove a competitive advantage by unlocking pools of collateral that were previously trapped in local markets.

“It’s critical that as much collateral as possible is leverageable by collateral givers and collateral takers,” said Colle. “That is only possible if you are not only a global custodian, but are also a multi-local sub-custodian.”

The platform comes as a growing number of buyside firms prepare to be swept into collateralisation of their uncleared derivatives exposures, as MiFID II brings FX forwards into scope for variation margin on January 3. That will affect many equity funds that use the contracts to hedge risk, but only have equities to post as collateral.

“Use of equities as collateral is extremely complex because of corporate action issues and haircut calculations,” said Virello. “The only way to use it in a controlled way is through a triparty service.” (Reporting by Helen Bartholomew)

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