Verdipapirsentralen ASA (VPS), the Norwegian central securities depository (CSD), and Clearstream, the post-trade services provider of Deutsche Börse Group, have signed a letter of intent aimed at developing new collateral management services for Norway.
The new service will enable VPS to offer to Norwegian market participants the allocation, optimisation and substitution of collateral to cover domestic exposures. VPS would offer these services on a white-labelled basis via Clearstream's fully automated real-time collateral management engine, the Global Liquidity Hub.
As a unique feature of the Liquidity Hub GO service, assets remain on accounts in the local market environment, thus not creating new systemic risks and meeting regulatory requirements in many domestic markets globally. Clearstream is the only collateral management services provider who is able to manage collateral across time zones and regions while the assets stay in the respective domestic market and under local legislation.
Going forward, the partnership between VPS and Clearstream will also help Norwegian financial institutions and VPS customers to overcome internal collateral fragmentation across systems. According to an end of 2011 estimate by Accenture, the financial services sector could save more than EUR 4 billion annually by addressing operational collateral management inefficiencies: decentralised operations and unaligned business objectives are limiting the ability of banks to manage collateral efficiently on a local and global basis. This shortfall can now also be addressed in Norway.
John-Arne Haugerud, CEO at VPS, said: "Our partnership with Clearstream will provide Norwegian financial institutions with the means to keep up with the increasing collateral requirements of Norwegian and international regulations. From a risk perspective, it was particularly important that the underlying assets do not leave the Norwegian jurisdiction and this is guaranteed under the Liquidity Hub GO service. The Global Liquidity Hub offers more than a domestic solution and we will explore this potential along our journey with Clearstream."
Stefan Lepp, Member of the Executive Board and Head of Global Securities Financing at Clearstream, said: "The regulatory agenda requires banks and financial institutions to better manage their capital and liquidity buffers. An efficient local and global collateral management service will become a must going forward - hence the growing popularity of our Liquidity Hub Go model through which our partners can offer sophisticated collateral management to their underlying clients without losing control over the assets. We are pleased about VPS joining our outsourcing service, thus including the first Scandinavian market in our global collateral management model."
Clearstream's Liquidity Hub GO solution has generated a lot of interest in markets worldwide since the go-live of the first CSD to use the service, Cetip (Brazil), in July 2011. In the course of 2013, ASX (Australia), Iberclear (Spain) and Strate (South Africa) have also implemented the service and are up and running. SGX (Singapore) and CDS (Canada) have signed letters of intent with Clearstream and numerous other market infrastructures are in the process of evaluating the implementation of the white-labelled collateral management outsourcing solution for their domestic markets.
The Liquidity Hub GO initiative has gained momentum as upcoming regulatory changes like BASEL III or CRD IV require financial and non-financial institutions to improve their liquidity management and, accordingly, their collateral management efficiency.
In January 2013, all infrastructures utilising the Liquidity Hub GO model founded the Liquidity Alliance, an association of industry peers which aims to create a sustainable, cross-market industry approach to address current and upcoming regulatory and operational requirements in the collateral and liquidity management space.