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Collateral Highway

Collateral Highway. Saheed Awan. Agenda. Context & Background Collateral Highway Summary. Context. Growing collateral flows as a result of EMIR, Dodd-Frank and Basel III How BIG? A challenge for the sell-side? An opportunity for the buy-side ?

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Collateral Highway

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  1. Collateral Highway SaheedAwan

  2. Agenda Context & Background Collateral Highway Summary

  3. Context • Growing collateral flows as a result of EMIR, Dodd-Frank and Basel III • How BIG? A challenge for the sell-side? An opportunity for the buy-side? • Collateral management will become systemic in nature and require a solid and scalable infrastructure backbone.

  4. Custodians ContextIndustry requires operating models for six key needs • (I)CSDs • Buy-side • Global Inventory Management • Rapid mobilisation • Optimum allocations • Client clearing and margin segregation • Collateral upgrades • Low cost • CCPs • Central Banks • Sell-side

  5. Background • In 2009 – Euroclear developed technology to provide an open global infrastructure • In 2011 – A full domestic triparty service for France • June 2012 - Open Inventory Sourcing (OIS) launched- interoperates with existing CM services, agent banks and CSDs

  6. Agenda Background Collateral Highway Summary

  7. Tripartycollateral receivers Central Banks CCPs Fixed repo Securities loans CSAs Equities Assets in domestic markets enter via Agents Banks/CSDs with OIS technology The Collateral Highway Into Next Time Zone Collateral Highway AutoSelect + Global Inventory Manager Collateral receivers (exit points) Collateral sourcing (entry points) Collateral upgrades (high grade fuel) The Highway Collateral upgrades from GCApool, triparty cash providers triparty sec lenders

  8. Exit points CENTRAL BANKS CCPs REPO C/P SECURITIES LENDERS CSA C/P More and more collateral receivers are joining the Collateral Highway: • 24 out of 93 central banks • Partnering LCH.Clearnet for EuroGC liquidity in France Q4 2013 • 7 CCPs - 4 being on-boarded, 3 in pipeline • 240+ liquidity providers and CSA counterparts today, over 25+ for on-boarding in 2013 • Partnering ACM to target new non-bank cash providers Creating the largest international liquidity pool with a single entry point to all major CCPs and their clearing members

  9. Entry points • Open Inventory Sourcing through CSDs and custodians • Nov 2012 - launched with BP2S and Citi, multi-market rollout • 2013-14 - on-board 4+ new agents and 2+ major CSDs • (Real-time) mirroring of local positions and activity • Assets remain in CSD or agent network but become visible to be mobilisedon the Highway • Standard messaging (SWIFT) for settlement and asset servicing • Continuous screening and optimization of available collateral pool Creating the world’s first open infrastructure & utility for Collateral Management

  10. From entry points to exit pointsExample Collateralising OTC derivatives… Custodian Clearing Member Buy-side C1 C2 C3 Collateral upgrade Collateral segregation

  11. Expertise and robust technology – the reason custodians and CSDs are joining • Expertise • Fast, affordable, non-disruptive • Collateral sophistication • Broad eligibility • Optimisation • Transformation • Re-hypothecation • Substitution • Continuous evolution • Few months vsfew years • Limited cost vs massive investment • Leverage existing infrastructure • Local andglobal solution • Proven technology • Operational support • Professional neutrality • Global reach (securities andcounterparts)

  12. Agenda Background Collateral Highway Summary

  13. Addressing the needs of new Operating Models • Collateral upgrades with GCA • Tripartysecurities lenders • Triparty repo cash lenders Collateral upgrades Upgrades Position Mgt ‘The Entrances’ • Position mirroring Inventory management • Optimisation across assets • and counterparties Optimum allocations Optimisation • Substitutions • (DVP) transfers Rapid mobilisation • Eligibility checks • Pricing and haircuts Allocation • Collateral safekeeping • Segregation (in SSS/CSD) • Consolidated, cross-location reporting • Reconciliation Client clearing and margin segregation Location exit points

  14. Tripartycollateral receivers Central Banks CCPs Fixed Income Repo Securitiesloans CSAs Equities Assets enter via Open Inventory Sourcing technology The Collateral Highway ... your Highway Into Next Time Zone Collateral Highway AutoSelect + Global Inventory Manager Collateral receivers (exit points) Collateral sourcing (entry points) Collateral upgrades (high grade fuel) The Highway Collateral upgrades

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