Collateral management: Recurring issues and emerging trends

Abstract

The securities markets in Europe is undergoing a period of significant transformation, driven mostly by the changing regulatory landscape as a result of the Lehman collapse and the subprime crisis. The impact of this change is still being felt but the industry is reacting with new technological solutions, in a market that, over the last decade, has become increasingly global. The horizon of the main participants is now truly global and solutions are needed for a real-time, 24/7 gross settlement basis where credit is offered exclusively on a secured basis. In this framework, securities’ collateral becomes key. Different views exist on the amount of collateral needed, depending on whether we consider both the cleared and the uncleared world. The key question, however, is where to efficiently place the securities collateral needed to operate when there is still uncertainty around the existing solutions, as well as regulatory and monetary policies affecting the liquidity and the availability of the high quality collateral to be used. Target2 Securities has been created to harmonise settlement in Europe. It represents the very first infrastructural change at a pan-European level to transfer securities. How will Europe change because of this? Will the changes work for globalised financial markets and how will securities collateral be efficiently mobilised?