GC Access Break-out session Euroclear Collateral Conference, Tuesday, 13 May 2014 A market driven by new regulations Themes Impact • High demand for high quality collateral and term lending • Capital cost Indemnifications • Repo market contraction? Solvency & liquidity Basel III • LCR, NSFR, Leverage ratio • Counterparty exposure limits OTC Derivatives DF /EMIR • Punitive capital charges for non CCP cleared OTC Derivatives • High demand for high quality collateral Reducing systemic risk Shadow Banking • Minimum haircuts • Increased transparency • Limits on cash reinvestment • Reduction Demand ? • Funding cost • Collateral velocity reduced? Limit speculation Short Selling/FTT • Tax on financial transactions • Requirement for reasonable expectation to borrow • Increased cost to borrow Increasing settlement efficiency CSDR • Mandatory buy-ins • Penalty regime • Increased demand fails coverage 2 What about the future … ‘Repo and securities lending are set to play an absolutely central role in the post-reform landscape’ Quote from a speech given by Andrew Hauser, Head of Sterling Markets Division, Bank of England, and Chair of the Securities Lending and Repo Committee (At JP Morgan’s Collateral Management and Securities Financing Forum, March 27 2014, London) 3 GC Access A new route to the market… Drivers Trends Fail Curing Market volume driven Collateral conversion Increasing need for high quality collateral (EMIR, Dodd Frank, Basel III) Euroclear Offering Automatic Borrowing Securitites lending and borrowing Opportunity Borrowing GC Access Investment Strategies (short selling, cheapest to deliver, ..) Reduced leverage & limiting regulation 4 GC Access A new route to the market… Direct exposure on Euroclear Bank Borrowers Direct Custodian/Agency Exclusives Street lending GC Access Settlement driven Automatic Fail Driven lending … building on 30 + years of experience 5 GC Access What’s in it for borrowers? • Focus on high quality collateral • Extension of existing autoborrow service • You borrow from Euroclear Bank at street levels • You pledge collateral to Euroclear Bank and authorize the unward pledge of the collateral to the lender • Limited number of collateral profiles • Collateralisation using TSL • We do the rest! Status • Pilot activity started Q1 2014 Collateral conversion • Gradually building lending supply 6 GC Access What’s in it for Lenders? • Generate additional lending revenues • The safest environment • Complementary to our Automatic fail-driven lending program ► 30+ years of experience ► Similar legal protection and set-up ► Borrower community already in Euroclear Bank • No additional workload, we take care of everything ► Benefit from Triparty collateral management without the need to be a Triparty specialist: we do the triparty set-up and instruct on your behalf ► No additional costs 7 Pledge set-up benefits for borrowers • Pledge agreement ► Transfer of collateral from the borrower to Euroclear Bank, and ► From Euroclear Bank to the Lender • The borrower remains the legal owner of the collateral securities • Allows for unwind of the loan and recovery of collateral in default situations 8 Multiple lines of defence ensure the best lender protection … • Strict Borrower approval ► Stringent borrower admission process ► Specific GC Access credit line • Borrower default has no impact on you ► Euroclear Bank guarantee (AA rated) covers all Borrower’s obligations • Loan unwind in case of Euroclear Bank default • Collateral in your name to protect against Euroclear Bank and Borrower default 9 GC Access Operational Flow 10 GC Access Loan arrangement Loan Arrangement Pool Availability Borrower Request GCA Desk GCA Borrower Euroclear offer • Contact the Desk via Bloomberg, email, or tel ► [email protected] ► [email protected] (bloomberg e mail) ► 0032 2 326 42 20 • Send your locates or review pool availability Loan Confirmation • Daily confirmation of trades end of day GCA Desk GCA Borrower 11 GCAccess Loan settlement – A pre-paid model Collateral Collateral 1 Pre-collateralisation of loan exposure Borrower Main Trading account Collateral Pledge Pledge Triparty FOP Triparty FOP EB Account Lender collateral account Loan 2 Once collateralised Loan generation Loan Settlement Delivery FOP Loan Euroclear Bank Transit account Settlement Delivery FOP Lender Main Trading account 12 Loan Management Corporate Actions Monitoring Monitoring of • Corporate actions GCA Desk Lender Main Account • Income proceeds • Automatic compensation of income proceeds, redemptions, mandatory corporate actions • A recall will be triggered if lenders wish to participate in a voluntary corporate action • Lenders to instruct a recall for meetings if they wish to elect 13 Loan management Recalls Monitoring Monitoring of • Settlement activity GCA Desk Lender Main Account • Corporate actions • Recalls are generated ► Upon Lender request ► When a Lender has an upcoming delivery instruction ► For certain corporate actions • Recall periods T + 2 or T+1 (UK Gilts, US Treasuries) 14 Reporting Data Information Report Frequency Format Channel Collateral and Loans • Position • Security information (rating, country, issuer type, currency) • Valuation • Applicable haircut Margin report Once a day at the end of day CSV file Pdf Email Triparty Collateral and Exposure Statement 2, 14, or 16 times per day MT569 SWIFT Triweb 10 times per day MS access Secured website Collateral Loan balances and fees • Position • Security identification Statement of holding Once a day at end of day MT535 SWIFT • Loan balances • Fees Loan balances and fees Optional (daily, weekly, monthly) Excel CSV PDF Email 15 15 GC Access How to get started to borrow? • Confirm ► Your agreement to the contractual documentation GC Access Terms and Conditions – GC Access Operating Procedures Your reporting options – ► • Agree with EB on a dedicated credit line for GC Access activity • Agree with credit documentation ► Credit letter ► ► ► GC Access General Conditions GC Access Collateral Agreement GC Access Securities Borrowing Conditions 16 GC Access How to get started to lend? Register for the service by confirming: • Your agreement to the contractual documentation ► GC Access Terms and Conditions ► GC Access Operating Procedures • Your lender profile • Your lending cap • Your reporting options 17