Source: Deutsche Börse
Avox, the leading counterparty data verification network, is expanding its services to a new business area: As of September Avox offers monitoring services for collateral used in open market operations in the Eurosystem.
With its new Collateral Monitoring Service, Avox builds up financial institutions' hierarchies and monitors them on a weekly basis. This hierarchy is then mapped against assets eligible in open market operations to prevent banks from submitting as collateral towards the central bank own issues or assets issued by related parties. The new service will increase the efficiency of the collateral allocation process thereby increasing liquidity.
Assets eligible as collateral for Eurosystem monetary policy operations must fulfill certain criteria. Amongst others, a bank must avoid so called "close links" meaning it must not submit as collateral any asset issued or guaranteed by itself or by any other entity with which it has close links by owning 20 percent or more of the capital. Without hierarchies and mapped assets, banks today usually do not applying uncovered bonds as collateral to avoid the close link risk. Avox's Collateral Monitoring Services allows banks to rigorously monitor potential close links and therefore make more assets available as collateral.
"With the Avox Collateral Monitoring Service we offer banks a great value in their open market operations because the amount of collateral can be increased at the same time minimizing the risk of a penalty from the central bank. With the enlarged amount of eligible assets banks can improve their liquidity", said Ken Price, CEO of Avox.