The benefits of a triparty collateral platform

Farzana Khan, Head of Collateral Services, moderated a panel at this year’s virtual Global Investor ISF Securities Finance Masterclass, this week.

The panel consisted of specialists in repo and collateral, namely: Amogelang Tlhomelang, Fixed Income Trader, Rand Merchant Bank; Gill Raine, Senior Consultant, ASISA; Staffan Ahlner, Global Head of Collateral, State Street; and Nicolette van der Merwe, Securities Finance Collateral Trader, Nedbank.

Panellists agreed that despite the turbulence caused by COVID-19 and Moody’s sovereign credit rating downgrade, the South African repo market has overall performed well in the past year. This was aided by the prudent approach of the South African Reserve Bank in introducing a number of mechanisms to provide funding and liquidity to the markets. The global repo market was also fairly resilient and stable over this difficult time.

South Africa is one of the few repo markets in the world with largely buy/sell-back transactions, which has some limitations. Panellists looked at the implications of this, especially when considering that international counterparts are more accustomed to classic repo.

To realise the benefits of classic repo you need efficient processes in place to execute substitutions and daily margin calls. In view of this, the global trend has been to outsource the administration of classic repo transactions to a triparty provider who can generate margin calls as well as instruct and facilitate security collateral substitutions, while still monitoring custody.

As one panellist put it, triparty platforms are “extremely efficient mechanisms”.

It was pointed out that tri-party collateral management infrastructures have been used for more than 20 years by many leading markets globally to enable money market liquidity and expand pools of eligible collateral.

Strate Collateral Services serves the South African financial market as a triparty collateral management provider that facilitates the automation of the administration of classic repo transactions. Please contact Strate Collateral Services for more information collateralmanagement@strate.co.za