One size fits one – annual Post-Trade Forum in London
On 21 May, SIX Securities Services hosted its annual Post-Trade Forum in London, where two subjects, T2S and collateral management, came under the spotlight.
With the live launch of T2S planned for June, Christophe Lapaire, T2S Program Director at SIX Securities Services, successfully prepared delegates for the possibility of delay without drama – always good to manage expectations – while the rest of the afternoon was given over to discussing the challenges and opportunities arising in the area of collateral management.
The International Securities Services Association (ISSA) has been active in furthering efforts to advance a common understanding of collateral management processes. Angus Fletcher, Head of Market Advocacy, Global Transaction Bank, Deutsche Bank, who heads ISSA’s Collateral Management Working Group, presented an outline of ISSA’s work.
The panel discussion moderated by Dr Richard Schwartz, Consulting Editor, Global Custodian Magazine, was billed as an exploration of opportunities in a post-T2S and post-EMIR Europe. Since too much good news could provide grounds for suspicion, the group therefore spent most of the hour picking apart the diverse challenges that collateral management today presents to participants in different parts of the value chain.
In addition to Christophe Lapaire and Angus Fletcher, two other high-profile panellists joined the discussion: Robert Almanas, Head Strategic Alliances, SIX Securities Services and Adam Husted, Head of Clearing and Business Development, CME Clearing Europe Ltd. It became clear early on in the discussion that a coordinated approach to collateral management is hard enough across one corporate entity, never mind the securities industry as a whole.
There was recognition that collateral management activity is driven to a greater or lesser extent by at least one of the three Rs: regulation, risk and revenue. What was less obvious was that the same people within each firm are responsible for exploring collateral management strategy from each of these angles.
The sense the group got was that regulation – and in particular new requirements for risk reporting – would likely force greater coordination across individual enterprises. In other respects, however, participants need to guard against the assumption, seemingly favoured by some regulators, that greater transparency in account structures necessarily leads to greater protection.
Where investors have committed collateral to support their cleared activity, they want to be assured that it remains safe in the event of a market disturbance, such as may result from the default of a participant in what is a multilateral process. However, the assumption that the best way to do this is to encourage full account segregation at all levels down to the CSD was shown to be shaky. There is a clear difference between offering the choice of full segregation – a necessary prerequisite for some clients – and a belief that it is appropriate for all.
An exponentially growing web of accounts requiring daily reconciliation is not necessarily a recipe for efficiency. The more accounts a transaction needs to pass through, the greater the transit risk and the more administrative activity is involved from a data maintenance perspective. It should be left to the owner or manager of the assets to assess the relative costs and risks of each available approach. It is the job of intermediaries to offer the broadest set of options consistent with regulatory requirements.
There is an understandable desire for conferences to produce more answers than questions. Nevertheless, it can sometimes be helpful to assess the traffic situation before deciding the route and not to simply rely on the GPS.