Steve LethabyVice President, GSF Sales andRelationship Management responsiblefor the UK, Ireland, South Africa and theAmericas, Clearstream

Steve Lethaby is Vice President of the Global SecuritiesFinancing (GSF) Sales and Relationship Managementdepartment at Clearstream. Based in London, he isresponsible for day-to-day triparty sales andrelationship management and client implementation(repo, securities lending and collateral management) looking after clients andprospects based in the UK, Ireland, South Africa and the Americas.Steve joined Clearstream in 2008 working in the Origination / Global Securities

Financing Sales team as a sales/relationship manager for triparty collateralmanagement clients. He held previous roles as Regional Sales Manager forSunGard Data Management solutions and as Vice President at Pershing Securitiesworking in a Sales and Relationship role.Steve holds a BA (Hons) in Economics and Law from the University of

Wolverhampton.

Promoting Clarity,Consistency and Automationin Transaction Processing

The background to online dealing

The value of online dealing of FX transactions, typically throughbank-independent portals, has become widely recognised in recentyears, with a large proportion (over half according to recent studies)now using these platforms for transaction execution as an alternativeto telephone dealing. There are a variety of benefits to this approachfrom both a decision-making and a straight-through processing (STP)perspective. For example, users have the ability to seek competitivequotes from any number of their authorised dealing counterpartieson a transaction, or to request a quote from a single bank. Thebank(s) bid for the deal online, and the user then selects the chosenquote, most commonly according to the best price, but other factorssuch as bank relationships and credit limit utilisation will also play arole. The transaction, together with the unsuccessful quotes, can then

by Steve Lethaby, Vice President, GSFSales and Relationship Managementresponsible for the UK, Ireland, SouthAfrica and the Americas, Clearstream

T reasurers in all regions with surplus cash to invest aredealing with diverse regulatory and market challenges,with an extended period of ultra-low interest rates and

a variety of recent and pending regulations, such as MiFID IIand money market fund (MMF) reform in the United States. Aswe have established in previous articles (see TMI edition 235and TMI’s SWIFT Corporate Forum 2015-2016 ) thesedevelopments are prompting treasurers to explore a widerspectrum of investments, such as tri-party repos. However,despite - and in some cases because of - the challengingperiod that we are experiencing, there are also significantopportunities emerging for greater transparency andautomation in transaction execution and processing.

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insight

be passed through automatically to thetreasury management system (TMS) orenterprise resource planning (ERP) tool,without the need for manual input. Thetransaction is then subject to treasury’sauthorised approval and back officeworkflow processes, and updates risk,accounting and management reports.

The proposition for tri-partyrepos

As corporate treasurers have become morefamiliar with online dealing, and adoptionhas increased, the number of financialcounterparties that deal through theseplatforms, and the range of instrumentssupported, have increased. For example, FXand interest derivatives, loans and deposits,and MMFs are now widely tradedelectronically, offering comparableadvantages to online dealing of FX. Thisvalue proposition also extends to tri-partyrepos. They can be traded through platformssuch as 360T, a recently acquired DeutscheBörse Group sister company of Clearstream.One of the aims of this acquisition was to

provide users with a seamless decisionsupport and STP solution across allinstrument classes, including tri-party repos(figure 1). Users of other platforms too,however, including Bloomberg, whichfacilitates tri-party repo trading on an over-the-counter (OTC) rather than a request forquote basis, are also able to achieve highlevels of STP, and we work closely withproviders.

Cohesive transactionexecution and processing

The ability to trade tri-party repos in thesame way as other investment, interest rateand FX transactions, and through the sameplatforms, is key for treasurers. In particular,they are able to implement standardprocesses for decision-making, demonstrateprice discovery and best-price dealing, andachieve a high level of operationalefficiency and control by integrating theplatform with the TMS or ERP. From aninvestment perspective, this enablestreasurers to choose investment types basedon their policy and suitability from a creditquality, liquidity, and yield perspective,rather than having to take transactional orprocessing issues into account.This is particularly timely given that many

investors in the United States are reviewing

and seeking to expand their investmentportfolios, as a result of MMF reforms thatare currently under way. In addition,growing levels of surplus cash and/orongoing low interest rates in all regions - asdespite the recent rate rise in the UnitedStates , investment returns are still very low- are encouraging treasurers to review theirinvestment portfolios. In some cases thisincludes lowering their credit qualitythresholds of both direct investment andtri-party repo collateral. This is exacerbatedby the effects of Basel III, resulting inovernight and short-term non-operatingdeposits becoming less attractive to banks.The ability to transact tri-party repos in thesame way as other transaction types istherefore very attractive both for domesticinstruments but also increasingly for cross-border tri-party repos. These instrumentsalso offer high levels of security as haircutson cross-currency collateral effectivelymitigate risk.

A year ahead

2016 already seems to be passing quicklyand in no time, the second Markets inFinancial Instruments Directive (MiFID II)will be upon us, which is due to take effectfrom 3 January 2017. MiFID is the EUlegislative framework for investment

intermediaries that provide financialinstrument-related services to clients andthe organised trading of financialinstruments. MiFID II and a new Markets inFinancial Instruments Regulation (MiFIR),present wide-ranging changes, includingextending existing MiFID transactionreporting obligations to include a widerrange of instruments. One of the outcomesfor corporate investors is the need forimproved pre- and post-trade transparency.Consequently, the ability offered by 360T toseek competitive quotes, and to maintain anaudit trail of this information on thewinning transaction is a vital capability.At present, not all banks support online

dealing of tri-party repos through 360T andother platforms, but the number is growingas investor awareness increases demand. AtClearstream, we are working closely withour 360T colleagues, and other platformproviders, to promote greater choice,consistency and efficiency for clients asthey transact tri-party repos as partof an integrated investmentstrategy. �

Fig 1. The tri-party repo trading process on 360T with Clearstream’sGlobal Liquidity Hub

Market Taker

1

CollateralReceiver

2

4

3

5

3

CollateralGiver

TripartyAccount

7

5

Market Maker(s)

6 6

Quote‘Collateral basket’

Global Liquidity Hub• Trade matching • Basket confirmation• Eligibility check• DVP processing• Interest accruals

1

1 Market Taker inputs order into 360T platform

2 Market Maker(s) quote for the order

3 Best quote accepted and both parties receive confirmation.

4 Order routed automatically by 360T to Clearstream on behalf of both parties

5 The Global Liquidity Hub confirms transaction matching and initiates opening and eligibility checks

6 DVP settlement

7 Clearstream continues to value and manage the collateral through the life-cycle of the trade

Many

investors in

the United

States are

reviewing

and seeking

to expand

their

investment

portfolios.

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