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Collateral optimisation

Collateral optimisation. Xuan Son Nguyen Breakout session Euroclear Collateral Conference Monday, 12 May 2014. Triparty collateral management Automating collateral management tasks. Exposure. Securities. Collateral Giver. Collateral Taker. Why optimising collateral allocation ?.

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Collateral optimisation

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  1. Collateral optimisation Xuan Son Nguyen Breakoutsession Euroclear Collateral Conference Monday, 12 May 2014

  2. Tripartycollateral managementAutomating collateral management tasks Exposure Securities Collateral Giver CollateralTaker

  3. Whyoptimisingcollateral allocation? • Basel III: LCR & NSFR • Dodd-Frank & EMIR: mandatorymarginingof OTC derivatives • Sovereigndowngrade • higherhaircuts • limitedvelocity • … Increasedneedof quality-collateral Loweravailabilityof quality-collateral Collateralshortfall?...

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

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

  6. Euroclearcollateral optimisationIt startsat initial allocation… AutoSelect the automatic triparty collateral allocation and monitoring module of Euroclear AutoSelect standard allocation order • Samecurrency first (optional) • Rating (lowest to highest) • Position size (smallest to largest) • Issuer type (other to supra to sovereign) • Market type (international to domestic) • Euroclearsecurity code (highest to lowest Available collateral

  7. Euroclearcollateral optimisationIt startsat initial allocation… AutoSelect the automatic triparty collateral allocation and monitoring module of Euroclear Full flexibility at initial allocation You can define sub-pools of collateral and the order in which you wish to allocate them E.g. Small caps Secondary indices Primary indices

  8. Euroclearcollateral optimisationAnd beyond! Fail-driven What ifthere is a mismatch between the time of the trade and time of availability of eligible collateral? Quality-driven What if the quality of the eligible collateral portfolio evolves during the life of the trade? 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?

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

  10. BBB BBB BBB AAA AAA AAA Euroclearcollateral optimisationAnd beyond! AutoSelect Quality-driven collateral swaps What if the quality of the eligible collateral portfolio evolves during the life of the trade? CG CG CG Receipt A A AAA AAA A AAA A AAA C/P1 C/P2 C/P1 C/P2 C/P1 C/P2

  11. Euroclearcollateral optimisationAnd beyond! AutoSelect 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? CLOSING of OLD trades S-1 S INITIATIONof NEW trades Securities Settlement System GIVER Cash Cash TAKER Collateral Collateral

  12. Euroclearcollateral optimisationThroughout the day Fail-driven optimisation New quality-driven optimisation A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O A U T O SET1 SET2 SET 1 Real-time settlement 18:20 19:00 02:00 03:15 06:00 07:00 08:00 09:00 10:00 13:30 14:25 15:30 16:30 17:45 12:45 04:30 11:00 12:00 04:30 Rollover optimisation

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

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