Collateral management harmonisation

Part of the Eurosystem’s mandate is to foster European financial market integration and promote a truly domestic single market in Europe. Harmonised collateral management processes are a key prerequisite for achieving this. Yet, barriers and obstacles still exist on account of fragmented legacy standards, structural constraints and complex and diverse market practices.

What is SCoRE?

In order to address this fragmentation, the Eurosystem’s Advisory Group on Market Infrastructures for Securities and Collateral (AMI-SeCo) is working towards developing a Single Collateral Management Rulebook for Europe (SCoRE), which defines common rules for managing collateral.

The harmonised collateral management processes laid down in SCoRE will ultimately make it easier for:

• market participants to move their securities and collateral safely and efficiently between EU countries, without friction or restrictions;
• investors to buy securities in any EU country and use them as collateral in the same or any other EU country;
• banks to move collateral and securities quickly to where they are needed.

It will also lead to:

• increased efficiency, by enabling collateral management across Europe from a single account using the same procedures;
• lower costs, as a single rulebook will allow market participants to implement a single set of procedures;
• interoperability, resulting from common messaging based on a common set of data across financial market infrastructures;
• lower risk in managing securities and collateral as a result of the standardisation of processes;
• a level playing field for all market participants across Europe;
• increased reach beyond domestic markets.

What activities are covered?

The AMI-SeCo identified ten areas where further harmonisation was needed.

Triparty Collateral management

Harmonisation of triparty collateral management workflows and messaging in order to facilitate interoperable processes allowing collateral mobility across triparty agents.

Corporate Actions

Harmonisation of Corporate Actions processes, workflows and messaging by reinforcing existing harmonisation standards or adding new harmonisation standards (taking into account specific considerations from a collateral management perspective).

Taxation Processes

Harmonisation of tax processing in the context of collateral management (taking into account identification of parties in collateralised transactions).

Bilateral Collateral Management

Harmonisation of workflows for bilateral collateral management (covering non-cleared OTC derivatives and securities financing). Interoperability and leverage of existing infrastructures and market platforms.

Margin collateralised

Interoperability and leverage of existing infrastructures and market platforms for margin processes.

Billing Processes

Harmonisation of billing procedures, workflows and messaging.

Cut-Off Times

Minimum requirements for end-of-day cut off times to avoid possible different value dats in cross-infrastructure transactions in different markets, which may create frictions for market participants active in different markets.

Collateral Dynamic and Static Data

Harmonisation of data exchanges to ensure that information / data is available where necessary. Market practices needed for use of data.

Sourcing of Collateral

Miminum requirements for sourcing/movement of collateral across Europe.

Non-Euro Collateral

Market practices for the handling of non-euro denominated collateral (including related corporate action processes).

What standards have been agreed?

Standards have already been agreed in three of these areas:

Triparty Collateral Management

A single triparty model for Europe with common processes for interaction between all major European triparty service providers and their participants, including the Eurosystem, using ISO 20022 messaging.

Triparty Collateral Management: Single Collateral Management Rulebook for Europe

Billing Processes

A single set of rules for the transmission of billing information by post-trade service providers related to custody and collateral management, including the alignment of billing frequency and dates and using ISO 20022 messaging.

Billing Processes: Single Collateral Management Rulebook for Europe

Corporate Actions

A first set of harmonised business processes and workflows for debt instruments, foreseeing the use of ISO 20022 messaging. Work on other instruments, such as equities, is ongoing.

Corporate Actions: Single Collateral Management Rulebook for Europe

The AMI-SeCo has also defined a framework for monitoring the implementation of the standards. Work to define standards in the remaining areas is ongoing.

How are we moving towards harmonisation?

A dedicated taskforce under the AMI-SeCo brings market participants together to define common rules for managing collateral in Europe. There are three steps in the SCoRE process, from defining to implementing the standards.