NEW YORK, Nov. 10, 2021 /PRNewswire/ -- The global
collateral marketplace remains highly fragmented, making it
challenging for market participants to easily deliver securities to
locations where they can be efficiently posted as collateral,
according to a new white paper published today by BNY Mellon and
Euroclear.
The paper, Bridging the Collateral Divide, shares for the
first time an analysis of the collateral businesses of the world's
two largest collateral infrastructure providers. This analysis –
which was conducted by PwC in 2019 – was undertaken to broadly
understand the potential for enhanced collateral usage. It examines
the number of common collateral clients between the two firms, the
types of securities these clients are holding as collateral assets,
and the financing activity this collateral is being used to
support, such as repo, securities finance and over-the-counter
derivatives transactions.
The analysis sheds light on a number of issues in the collateral
marketplace that have long been suspected but not empirically
verified until now. Among the standout observations:
- BNY Mellon and Euroclear had numerous collateral provider
clients in common.
- The majority of common clients held fixed income securities
under custody with both firms, with government bonds being the most
common class of bond.
- A large proportion of clients held equities across the two
firms, but stocks as collateral represent only a small portion of
overall client holdings.
- Triparty repo and securities lending are the two most popular
types of trade activity collateral is used to support.
- A significant portion of the common universe of assets were
unencumbered, presenting an efficiency opportunity for assets to be
moved between the platforms if a better view on cross-institution
collateral optimization was possible and if collateral mobility was
more achievable.
The high degree of overlap in asset type and trade activity
highlights a potential opportunity for collateral providers to
enhance efficiency when moving assets from where they are located
under custody to where they are needed to support collateralized
transactions.
"It is clear that firms value the ability to optimize their
collateral across borders, and the industry needs to make it easier
to mobilize assets around the globe," said Brian Ruane, CEO, BNY Mellon Clearance &
Collateral Management. "We look forward to a discussion in our
industry on how to move toward a more frictionless and standardized
collateral marketplace."
Jo Van de Velde, Head of Group
Strategy and Product Expansion at Euroclear added: "We are very
pleased to have produced this paper together with BNY Mellon, which
gives in-depth insights on measures that could be taken to break
down silos and truly mobilize collateral management on a global
basis. Through market intelligence and industry engagement, we can
tackle the issue of collateral fragmentation in order to drive
market efficiencies."
The paper concludes by outlining a number of steps the
collateral community could take to promote the mobility of
securities inventory and the velocity with which collateral can be
delivered to where it is most needed. These include setting a T+0
or T+1 settlement goal, synchronizing operating windows, and
instituting a 24-hour inventory and collateral management service
model.
To read Bridging the Collateral Divide, click here.
ABOUT BNY MELLON
BNY Mellon is a global investments company dedicated to helping
its clients manage and service their financial assets throughout
the investment lifecycle. Whether providing financial services
for institutions, corporations or individual investors, BNY Mellon
delivers informed investment and wealth management and investment
services in 35 countries. As of Sept. 30,
2021, BNY Mellon had $45.3 trillion in assets
under custody and/or administration, and $2.3 trillion in
assets under management. BNY Mellon can act as a single point of
contact for clients looking to create, trade, hold, manage,
service, distribute or restructure investments. BNY Mellon is
the corporate brand of The Bank of New York Mellon Corporation
(NYSE: BK). Additional information is available on
www.bnymellon.com. Follow us on Twitter @BNYMellon or visit
our newsroom at www.bnymellon.com/newsroom for the latest company
news.
Contact: Peter Madigan
peter.madigan@bnymellon.com
+1 212 815 2308
Nina Truman
nina.truman@bnymellon.com
+1 212 815 2006
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SOURCE BNY Mellon