STRATE, South Africa’s central securities depository, will offer counterparties technology to boost collateral management in capital markets ahead of next year’s stricter Basel 3 rules on liquidity.
Banks will by January need to have more saleable assets on their balance sheets to comply with Basel’s 2015 liquidity coverage ratio targets.
The liquidity coverage ratio is a measure that requires lenders to have enough cash and liquid assets, such as sovereign debt, to survive a 30-day run on the bank.
“There’s going to be a greater demand for high-quality liquid assets,” Anthony van Eden, the strategic projects manager at Strate, said.
“The key is the correct collateral at the right time and the right value.
“If there’s a shortfall, it should get topped up and if there’s an excess, it should be returned – that’s what our technology does.”
Strate, South Africa’s only licensed central securities depository, has spent R70 million implementing Clearstream International’s collateral management technology.
It allows lenders and other financial institutions to use equities and bonds, rather than just cash, as collateral for bilateral trade.
“We went live in November [last year] and can take on clients” from yesterday, Strate chief executive Monica Singer said. “It’s a voluntary sign-up but it needs a big change in mindset – some banks will have to give up their inefficiencies.”
Instead of manually managing collateral and operating a range of trading desks, from the repo rate to over the counter, banks would be able to consolidate collateral management through the use of Strate’s automated system.
Clearstream’s technology was first used in Brazil three years ago before being adopted in Australia, Spain and now South Africa.
“All the countries that have joined have a liquidity alliance,” Singer said.
“One day, no matter where you are, you’ll be able to use your assets to collateralise trade across the world.”
Using Strate’s services is free for those receiving collateral, while those giving collateral will pay 4 basis points for R50 billion and 2.75 basis points for R100bn. – Bloomberg