An open highway to triparty

Euroclear Collateral ConferenceMay 2015

Risk management of treasury investments

Three key principles

• Capital preservation► Avoid direct banking exposure

• Maximisation of liquidity options

• … at a reasonable yield

2

Yield

Credit Liquidity

Reverse repo is your investment option

A market driven by new regulations

‘Repo and securities lending are set to play an absolutely central role in the post-reform landscape’*

Andrew Hauser, Head of Sterling Markets Division, Bank of England, and Chair of the Securities Lending and Repo Committee

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Increasing demand for high quality collateral and term lending

Basel III (LCR & NSFR), Dodd-Frank / EMIR, UCITS / Shadow Banking, CSDR

* Extract from a speech at JP Morgan’s Collateral Management and Securities Financing Forum27th of March 2014, London

Euroclear

The fast road to repo

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• Transfer of eligible securities against cash in a secured way

• Valuation of securities on daily basis to make sure always equal to 200m cash

• Margin calls and releases according to valuation

During the lifecycle of a repo

Securities

Cash

€ 200m

Collateral provider Cash provider

External use

Smoothing the bumps in the roadMarket and operational risk

Triparty collateral management services

Legal risks

Counterparty risk

• Thorough selection of counterparties• Collateralising exposures

• Market standard legal agreements(e.g. GMRA or GMSLA)

• Clear definition of eligible collateral• Diversification through concentration

limits• Over-collateralisation through margins

• Settlement risk• Collateral monitoring• Corporate events processing

Operational risks

Market risk oncollateral

Triparty collateral managementA neutral collateral agent

Collateral Giver Collateral Taker

Exposure

Collateral

Collateral profile

Reporting

Custody

Valuation

Settlement

Selection

Matching

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Smoothing the bumps in the roadMarket and liquidity risks

Collateral Taker can:

Exclude certain risks

Limit certain risks/diversify across types

Over-collateralise

• Time to maturity

• Instrument type• Rating• Issuer type• Country• Quotation age

Eligibility Set

•Eligible security

•Concentration limits

• Margin percentage

Equities

Fixed income

• Quotation age• Indices• Sector• Capitalisation• Traded volume

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Triparty collateral managementOne platform, multiple products

CashCollateral

Collateral

Loan(1)

Collateral

Collateral

(1) Optional

Seller

Repo

CCP GC products

Collateral giver

Borrower

Purchaser

Lender

OTC Derivatives

CCP marginingCollateral taker

Securities lending

Borrower Central Bank

Central Bank credit operations

Questions

• What do you look for in a triparty partner?

• How can we support you when maximising your triparty relationships in order to meet your collateral needs?