LONDON May 12 CME Group's European clearing house and the post-trade arm of Swiss exchange operator SIX Group have teamed up to create a platform to manage collateral used to back derivatives trades.
Collateral management has become a top priority for banks and financial institutions due to new rules requiring that more derivatives trades be conducted through electronic platforms, pushed through clearing houses and backed by collateral, often cash or top-quality government bonds.
SIX Securities Services (SIS) said on Monday the new service allowed market participants to place collateral directly in CME Clearing Europe's account at its central securities depository, giving greater clarity on how collateral is being used and what is available to meet margin requirements.
It also provides automated segregation, or ring-fencing, of one client's assets from another.
Once regulators give the system the green light, it will first be available for Swiss-based insurance companies. CME and SIX plan to later roll out the service to other markets and buy-side institutions.
A number of companies have introduced new collateral management services to capitalise on the market reforms. Last week, the Depository Trust & Clearing Corporation and Euroclear announced a joint venture to simplify settlement of trades and ease access to collateral.
Separately on Monday, CME said the Bank of England had approved its full segregation client protection model, the first such model that gives clients control of the securities they use to back trades at all times and creates legal certainty about how assets would be treated if a clearing member or a number of clearing members went bust.
The service, which goes beyond the requirements of the European Union's European Markets Infrastructure Regulation, will be available for the clearing house's over-the-counter financial and commodity derivatives as well as futures products, CME said. (Reporting by Clare Hutchison; Editing by Mark Potter)