Lombard Risk, the provider of regulatory reporting and other solutions, and Clearstream, the international central securities depositary based in Luxembourg, have entered a partnership intended to meet requirements of the pending Phase 3 of the European Market Infrastructure Regulation (Emir) due by September.
Emir is intended to reduce systemic risk and boost transparency in the international financial system. It requires standardised derivatives contracts to be cleared through central counterparties – a requirement that came out of the role derivatives contracts were seen to have played in triggering the global financial crisis of a decade ago.
It also means that a significant share of over-the-counter (OTC) trading will have to be settled on a collateralised basis and reported to central trade repositories. Phase 3 of the Emir implementation requires counterparties to exchange two-way margin on a non-netted basis for uncleared derivatives exceeding €1.5trn.
Lombard Risk said: “This puts additional pressure on tier 2/3 size firms to get their collateral management solutions in place. The necessary collateral must be segregated at a non-affiliated third-party custodian or triparty agent, such as Clearstream.”
The partnership between the two companies means that Lombard Risk’s collateral management clients get access to Clearstream’s triparty collateral management services. Benefits include access to improved liquidity at a global level, more efficiency around collateral, and straight through processing of collateral management for all asset classes. Data accuracy is another benefit touted, the companies note.
The triparty connection facilitates activities in areas such as repo, securities lending and borrowing and access to central bank money collateralisation at a eurosystem level, Lombard Risk said.
Further information on the objectives of Emir can be obtained from the European Commission: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/financial-markets/post-trade-services/derivatives-emir_en