News | Post-trade
LSE vies for fast-growing collateral management market
The London Stock Exchange Group has become the latest player to bid for a bigger slice of the fast-growing collateral management market with the launch of a new tri-party service through its Italian settlement house, Monte Titoli. Monte Titoli will act as a neutral third-party agent for banks’ treasury and operations departments to maximise the efficiency of the inter-bank collateral management process and minimise banks’ investment in back-office resources and IT. Users will have full control of the risk profile chosen for their investments and be able to monitor their portfolios continuously. During the initial implementation phase, the service, known as X-COM, will focus mainly on Italy, interacting with the Bank of Italy’s pooling system to support eurosystem credit operations. The second phase will see the service expand into other markets and further centralised activity of collateral management to support different business needs such as financing, securities lending and margin management for operations with central counterparties.
“The new X-COM service
responds to our customers’ growing need for diversification of financing tools and efficiency
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“The new X-COM service responds to our customers’ growing need for
diversification of financing tools and efficiency on the markets, offering a collateral management service essential to every market participant.” Paolo Cittadini, Monte Titoli
on the markets, offering a collateral management service essential to every market participant,” says Paolo Cittadini, chief executive of Monte Titoli. “This project has a systemic relevance not only for the entity and quantity of subjects involved but also to support the inter- bank market.”
The move to beef up its settlement house offering is the latest step by the London Stock Exchange Group towards its stated goal of becoming a global provider of market infrastructure. It is also positions Monte Titoli, alongside settlement houses, Euroclear and Clearstream, and custodians, J.P. Morgan and BNY Mellon, to grab a slice of the fast-growing collateral management market which is being fuelled by a deteriorating collateral supply. Creditors’ wariness about
unsecured lending had already put pressure on the collateral pipeline after the credit crunch but new banking and market regulations are raising demand still further. According to a report earlier this year by Morgan Stanley and Oliver Wyman, the move to drive derivatives onto exchanges alone could generate demand for between $500 billion to $800 billion worth of extra collateral.
Collateral management helps clients deploy assets as efficiently as possible by, for example, keeping a better track of margin requirements and the available stock of collateral using automated rather than manual systems, ensuring high-quality assets are used judiciously and reducing collateral requirements by consolidating and offsetting transactions at just one CCP, cutting margin obligations. ■
Best Execution | Autumn 2012
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