Regulation for cleared and non-cleared derivatives has driven the themes of collateral transparency, segregation, collateral tracking , standard reporting requirements and eligibility. Upcoming regulation, such as Secured Funding Transaction Reporting (SFTR), is further driving these themes at a transactional level for securities lending and borrowing, margin lending, commodities lending and borrowing and repurchase transactions. It is clear that the administrative burden on secured funding transactions is only going to increase in the foreseeable future, especially as collateralisation takes place on a per security basis. It is therefore critical to have certainty that each transaction undertaken, whether on a pledge or cession basis, fully complies with local market regulations in an efficient manner.
Strate offers a Tri-Party collateral product called Strate Collateral Management Services (SCMS), which is offered in addition to the traditional pledge and cession options. SCMS fully automates collateralisation processes between collateral givers and receivers, as well as the underlying post-trade ‘plumbing’, to ensure that transactions are effected efficiently and in compliance with local regulations, while futureproofing against upcoming regulations. This functionality fully alleviates the administrative burden typically associated with both pledge and cession transactions. This is achieved by Strate’s direct integration to the CSD Participants of collateral givers and receivers, and the use of segregated depository accounts. The solution is abstracted above the settlements layer and is able to manage complex collateral rules and then automatically execute the most optimal collateral by instructing custodians in an efficient, compliant and accurate manner.
Typically, pledging at a securities level has been a significant administrative burden. However, with SCMS, pledges are perfected at a securities level in terms of Section 39(1) of the Financial Markets Act via an automated system in just a few minutes, with no manual intervention or administration required from users. This enables highly efficient intra-day collateral substitutions on an unlimited basis. SCMS further extends this automation by allowing collateral givers to trade out of a single account, while at the same time enabling both cession and pledge of securities at an ISIN level – as corporate events, pending sales and reserved securities are already factored into the solution’s algorithm. Collateral optimisation is thus enabled for collateral givers, as they will not be required to manage collateral between separate collateral accounts and keep ‘buffer’ collateral in order to meet needs of multiple collateral receivers.
The SCMS solution is already live in the South African market and has enabled the automated use of both pledge and cession constructs across multiple exposure types and categories of financial and non-financial institutions.
If you are interested in learning more about our Tri-Party Collateral Services, please contact collateral@strate.co.zaor Steve Everett on +27 11 7595496.
