As custodian, Citi will continue to hold the assets of mutual clients, but triparty agents will be able to manage collateralisation directly from client trading accounts.
Using Euroclear Bank’s global ‘Collateral Highway’, clients will be able to use the assets that are deposited with both entities as collateral in real time, maximising flexibility and optimisation.
The alliance will boost the pool of potential collateral that can be used to cover exposures rising from transactions such as repos, loans, derivatives, central counterparty margins and central bank liquidity.
Clearstream’s Liquidity Hub Services will enable Citi clients to consolidate their collateral holdings for use within the Global Liquidity Hub to gain coverage of their global exposures from a single optimised collateral pool.
The liquidity hub allows clients to retain their asset portfolios within Citi’s custody network while Clearstream carries out collateral management functions including automated optimisation and substitution.
Sanjiv Sawhney, EMEA head of securities and fund services at Citi, said: “Against the backdrop of increased risks related to counterparty exposure and the impending global collateral squeeze, this new offering further demonstrates Citi’s commitment to developing open architecture solutions which allow our clients to more efficiently access liquidity pools.”
“This service improves collateral optimisation across all asset classes and markets by leveraging the breadth of Citi’s direct custody and clearing network that spans over 60 markets. We look forward to working with our partners and expanding this solution.”
Frederic Hannequart, chairman of Euroclear Bank, added: “The joint initiative is a significant market development, with the aim of delivering meaningful client benefits at a time when collateral is in greater demand than ever.”
“Together, Citi and Euroclear Bank will help our clients better manage counterparty exposures, ease access to liquidity and make more effective use of their assets as collateral, while alleviating the challenges of collateral fragmentation.”
Jeffrey Tessler, CEO of Clearstream, said: “I am delighted to have Citi as a partner for the further extension of Clearstream’s comprehensive liquidity pool. Liquidity Hub Connect will enable Citi to offer its customers the unique advantages of our collateral management services, which are widely acknowledged as the best in the industry and which continue to develop.”