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Collateral optimisation Xuan Son Nguyen Breakout session Euroclear Collateral Conference Monday, 12 May 2014.

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Presentation on theme: "Collateral optimisation Xuan Son Nguyen Breakout session Euroclear Collateral Conference Monday, 12 May 2014."— Presentation transcript:

1 Collateral optimisation Xuan Son Nguyen Breakout session Euroclear Collateral Conference Monday, 12 May 2014

2 Triparty collateral management Automating collateral management tasks Collateral Giver Exposure Securities Collateral Taker 2

3 Why optimising collateral allocation? 3 Basel III: LCR & NSFR Dodd-Frank & EMIR: mandatory margining of OTC derivatives Sovereign downgrade higher haircuts limited velocity … Increased need of quality-collateral Lower availability of quality-collateral Collateral shortfall?...

4 4 Euroclear collateral optimisation A comprehensive solution Benefits: Early exposure coverage A reduction in fails Minimising overall cost of funding Minimised credit usage At no extra cost ! Optimal Initial allocation Optimal Initial allocation Quality Credit usage Fail reduction

5 5 1. Determine available collateral positions Euroclear collateral optimisation It starts at initial allocation... AutoSelect the automatic triparty collateral allocation and monitoring module of Euroclear 2. Determine collateral operations to be processed 3. Collateral allocation algorithm 4. Generation and injection of settlement instructions

6 6 Euroclear collateral optimisation It starts at initial allocation… Same currency first (optional) Rating (lowest to highest) Position size (smallest to largest) Issuer type (other to supra to sovereign) Market type (international to domestic) Euroclear security code (highest to lowest Available collateral AutoSelect standard allocation order AutoSelect the automatic triparty collateral allocation and monitoring module of Euroclear

7 7 Full flexibility at initial allocation You can define sub-pools of collateral and the order in which you wish to allocate them Secondary indicesE.g. Small capsPrimary indices Euroclear collateral optimisation It starts at initial allocation… AutoSelect the automatic triparty collateral allocation and monitoring module of Euroclear

8 8 Fail-driven What if there is a mismatch between the time of the trade and time of availability of eligible collateral? Quality-driven Credit-driven What if the far leg of the repo settles early in the day, while you planned to roll it later on the same day? Euroclear collateral optimisation And beyond! What if the quality of the eligible collateral portfolio evolves during the life of the trade?

9 Fail-driven  collateral swaps What if there is a mismatch between the time of the trade and time of availability of eligible collateral? Euroclear collateral optimisation And beyond! AAA A BBB AAA BBB A FAIL ! C/P1C/P2 A C/P1C/P2 CG New Trs New receipt A (2) AA A (1) AAA BBB AAA C/P1 9 AutoSelect

10 Quality-driven  collateral swaps Euroclear collateral optimisation And beyond! 10 What if the quality of the eligible collateral portfolio evolves during the life of the trade? AAA A BBB AAA C/P1C/P2 A C/P1C/P2 CG AAA BBB AAA A BBB AAA C/P1C/P2 CG AAA Receipt A AutoSelect

11 11 Credit-driven  synchronise DvP settlement What if the far leg of the repo settles early in the day, while you planned to roll it later on the same day? Euroclear collateral optimisation And beyond! AutoSelect Securities Settlement System S S-1 GIVER TAKER Cash Collateral CLOSING of OLD trades INITIATION of NEW trades Collateral Cash

12 12 04:30 SET1 SET2 19:00 AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO AUTOAUTO 07:0008:0009:00 11:00 13:3014:2515:3016:3006:0010:00 12:45 17:45 04:30 SET 1 AUTOAUTO AUTOAUTO 03:1502:00 AUTOAUTO AUTOAUTO 18:20 New quality-driven optimisation Fail-driven optimisation Rollover optimisation AUTOAUTO 12:00 Real-time settlement Euroclear collateral optimisation Throughout the day

13 Open Inventory Sourcing service Consolidating fragmented pools Asset Manager CCP1 Central Bank CCP2 Bank 1 Pool of collateral Securities Fixed Income & Equities Repo – Set1 Repo – Set 3 Repo – Set 2 Liquidity – Set 4 Derivatives – Set 5 Lender Sec. Lending – Set n Domestic markets Open Inventory Sourcing Collateral Management & Optimisation 13

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