Clearstream, the international central securities depository (ICSD) within Deutsche Börse Group, has added investments funds to its portfolio of asset classes eligible for collateral use.
Clearstream customers can now leverage investment funds shares that are settled via and held by Clearstream to collateralise money market transactions in line with the product range offered through the company's Global Liquidity Hub.
Clearstream estimates that around 700 billion euros will be made available as collateral based on the most liquid money market funds managed in Luxembourg and Dublin. With this new asset class, Clearstream has added an additional element to its Global Liquidity Hub strategy which reaches across continents, timezones and a wide coverage of collateral types. This goes hand-in-hand with Clearstream's ongoing extension towards a global exposure coverage service steered out of the company's collateral management facility which allows customers to further optimise their use of accessible collateral.
Stefan Lepp, Member of the Executive Board and Head of Global Securities Financing (GSF) at Clearstream, said: "We are constantly improving the number of asset classes eligible as collateral for our Global Liquidity Hub while at the same time expanding the number of links towards infrastructure providers across the globe. Our global extension allows for a new level of collateral optimisation by leveraging a centralised collateral pool servicing, for example, global margin calls in line with local market requirements."
Philippe Seyll, Member of the Executive Board and Head of Investment Funds Services, said: "Together with Deutsche Börse, we have just launched our new funds trading on exchange offering, making more than 80,000 investment funds available for stock exchange trading over time. As funds units can now be priced and monetised immediately, they can also be used as collateral if pooled at Clearstream."
Clearstream offers a wide range of collateral management services together with a suite of securities lending products under its GSF services. In December 2010, the GSF monthly average outstanding volume reached an all-time high of 576 billion euros which demonstrates the growing importance of secured financing and a centralised liquidity hub. The assets held under custody in the Investment Funds Services also reached a record figure of 212.4 billion euros in December 2010.
Clearstream has long focused on securities financing mechanisms which provide much of the liquidity to the world's capital market. Clearstream's Global Liquidity and Risk Management Hub for the industry allows the company to offer a highly automated, smooth and safe environment for its customers - borrowers, lenders, and those dealing with bonds, cash, equities or funds - or any participant collateralising those assets.
Restoring investor confidence after the 2007 market liquidity failure has been a priority in the last couple of years. The post-crisis environment has sharply increased the need for security and is therefore questioning the capacity to supply enough collateral in the form of traditional financial instruments.
Collateral management has traditionally been supported by more established asset classes such as government securities or even cash.