LONDON, May 6 (Reuters) - Financial markets post-trade services providers the Depository Trust & Clearing Corporation (DTCC) and Euroclear have proposed a joint venture that will simplify the settlement of trades and ease access to collateral, the two companies said on Tuesday.
The need for collateral - cash or top-quality government bonds - is expected to rise sharply as new European Union rules for derivatives require that trades need to be backed by collateral.
The reforms put a further strain on banks, which are already dealing with broader banking regulations forcing them to build up their capital buffers to withstand any future financial shocks.
DTCC and Euroclear’s planned tie-up will focus on increasing automation in the settlement of margin calls - a demand by a broker that an investor post additional cash to its account - and will pilot a scheme to improve the mobility of collateral.
The companies intend to extend access to the service to other settlement platforms.
“Collateral processing continues to become more complex, with margin calls expected to rise steeply and the need to seamlessly integrate collateral and spot market settlements similarly increasing. Firms are actively looking for global solutions to solve these issues,” Michael C. Bodson, president and chief executive of DTCC.
The launch of the joint venture is subject to several conditions, including any necessary regulatory approvals, the companies said. (Reporting by Clare Hutchison; Editing by Greg Mahlich)