Strate, the South African securities depository, is in talks with Clearstream about outsourcing its collateral management functions in its domestic market to the Luxembourg-based international securities depository.

The move expands Clearstream's role from offering settlement and other asset-servicing functions to banks and brokerage firms. Clearstream has inked similar deals with Cetip, the Brazilan depository, and ASX, operator of the Australian Stock Exchange. Although regulators typically prevent assets used for collateral from being taken out of a home market, Clearstraem says that its service will permit the collateral to be kept in the domestic market and under the oversight of local securities watchdogs. The service called Liquidity Hub will offer allocation, optimizaiton and substitution of collateral - all functions required to ensure that financial firms maximize their use of collateral so they aren't using too much for any particular transaction.

Strate is 45 percent owned by the Johannesburg Stock Exchange, with the balance owned by ABSA, Nedbank, First Rand and Standard Bank. The securities depository has also extended its reach beyond home waters by joining a European initiative Link Up Markets which allows it to connect with other European depositories for settlement of cross-border transactions.

Collateral management refers to the business of calculating and transferring collateral to back a transaction. Securities lending, repurchase, and swap agreements are often collateralized. Fund management firms often prefer to outsource the process to their custodian banks. Last year, a survey conducted by Clearstream with global consultancy Accenture highlighted the cost savings the financial sector could experience by making collateral management efficient. Banks are also facing pressures from regulators to improve their collateral managemnet functions so they won't have to set aside as much regulatory capital.

"The ongoing financial crisis and regulatory initiatives like EMIR or reforms like Basel III require market participants to improve their liquidity management," says Jeff Tessler, Clearstream's chief executive in a statement. "Companies need to more efficiently handle their collateral holdings and exposures and an outsourcing service addresses their industry concerns." Like its U.S. counterparty, the Dodd-Frank Wall Street Reform Act, the European Market Infrastructure Regulation, calls on financial firms to electronically trade many of their swap contracts and clear them through centralized clearinghouses which will require them to post collateral.

Written by Chris Kentouris, Editor-in-chief (Chris can be contacted through Chris.Kentouris@hotmail.com)

 
State Street Corp., one of the world's largest custodian banks, has lost a bid to dismiss a lawsuit from an Arkansas pension fund that it overcharged on its foreign currency trades.
 

 
ISIS Fund Services, a Bermuda-headquartered hedge fund administrator, has installed a technology platform from Linedata to expand the portfolio analytics available to its clients.
 
 
 

 
Equity derivatives trailed interest rate and credit default swaps when it comes to post-trade automation, according to a study just released by the International Swaps and Derivatives Association.
 

Broker-dealers outsourcing their middle and back-office operations will soon have to follow a tad more rigorous requirements from the Financial Industry Regulatory Authority in establishing procedures and controls for how they manage their service providers.

Chicago headquartered global custodian Northern Trust says it has installed an enterprise data management platform from London-based Cadis in its worldwide investment operations outsourcing unit.

Wells Fargo is branching into prime brokerage through the acquisition of Merlin Securities for an undisclosed pricetag.