The proposed venture will result in the launch of new industry utilities to streamline margin settlement processing and improve access to collateral globally.
“In bringing together two of the industry's largest post-trade market infrastructures, we will be addressing sub-optimal collateral mobility and allocation issues by creating the biggest open architecture collateral processing ecosystem, accessible to all market participants across the globe,” said Tim Howell, CEO of Euroclear.
Processing of collateral is becoming increasingly complex as OTC derivatives are being pushed onto central clearinghouses, leading to demand for more efficient processes.
“Collateral processing continues to become more complex, with margin calls expected to rise steeply and the need to seamlessly integrate collateral and spot market settlements similarly increasing. Firms are actively looking for global solutions to solve these issues,” said Michael Bodson, president and CEO, DTCC.
Euroclear and DTCC also expected the venture to improve the safety of the financial markets.
“By delivering tangible benefits to the industry, we will improve efficiency and mitigate risks at a time when regulatory change is expected to significantly increase the volume of margin calls and securities collateral settlement,” Howell said.
The venture will result in a collateral processing infrastructure that will incorporate both firms’ abilities and efforts. It will initially focus on creating a margin transit utility (MTU) to provide straight-through processing for margin obligations, and will pilot a collateral management utility (CMU) to address the issue of mobilising sub-optimal collateral globally.
The MTU will use the DTCC’s development work while the CMU will leverage Euroclear’s technology.
Once fully operational, the utilities will be integrated to provide a seamless front-to-back collateral processing platform.
The joint venture is subject to several conditions, including completion of definitive documentation, final approval from the boards and receipt of any necessary regulatory approvals.