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

2. Triparty collateral management Automating collateral management tasks
Collateral Giver
Collateral Taker
Exposure
Securities

3. Why optimising collateral allocation?
Basel III: LCR & NSFR
Dodd-Frank & EMIR: mandatory margining of OTC derivatives
Sovereign downgrade
higher haircuts
limited velocity …
Increased need of quality-collateral
Lower availability of quality-collateral
Collateral shortfall?...

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

5. Euroclear collateral optimisation It starts at 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. AutoSelect standard allocation order
Euroclear collateral optimisation It starts at initial allocation…
AutoSelect
the automatic triparty collateral allocation and monitoring module of Euroclear
AutoSelect standard allocation order
Same currency first (optional)
Rating (lowest to highest)
Position size (smallest to largest)
Issuer type (other to supra to sovereign)
Market type (international to domestic)
Euroclear security code (highest to lowest
Available
collateral

7. Full flexibility at initial allocation
Euroclear collateral optimisation It starts at 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. Euroclear collateral optimisation And beyond!
Fail-driven
What if there 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. Fail-driven  collateral swaps
Euroclear collateral optimisation And 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?
AAA A
BBB
FAIL !
C/P1
C/P2 CG
New
Trs
New receipt
(2)
(1)

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

11. Credit-driven  synchronise DvP settlement
Euroclear collateral optimisation And 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?
Securities Settlement System S
S-1
GIVER
TAKER
Cash
Collateral
CLOSING of OLD trades
INITIATION of NEW trades

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

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