GFF Podcast

Triparty repo, marriage broking & advanced treasury operations

• Clearstream • Season 4 • Episode 4

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This month we take a deep dive into treasury operations and the advantages of Clearstream’s unique marriage broking service within triparty repo. We discuss how Clearstream matches sell-side and buy-side market participants with new market opportunities, plus bilateral and triparty repo, foreign exchange (FX) swaps, cleared and uncleared services to manage cash across multiple jurisdictions. Join our hosts, Andrew Keith Walker and Christian Rossler, with Defi Kimenga, Head of Trading at Clearstream Treasury (Luxembourg) and Marc Poinsignon (Business Development, Marriage Broking) to discuss services that enable market participants to scale rapidly, reduce costs and be more agile in the money markets.

Speaker 1:

Hello and welcome back to the GFF podcast for October. Yes, you heard that right, it is October already. Where has the year gone? Summer has passed and we're now firmly looking down the barrel of Q4 and a whole lot of exciting developments taking place in the world of funding and financing. And joining me we have, of course, my co-host, the GFF of BFF, christian Rossler. Christian, welcome back. Hi, andrew, happy to be back. Well, it's great to be back here in the studio. I can't believe that the summer has gone. It's grey and raining here, same in Luxembourg. Well, it may be raining and grey out there across Europe, but it's always sunny.

Speaker 1:

In the money markets, of course and this week we are talking about a really interesting topic We've got two sides of the coin. We've got a treasury trading manager who has large cash balances to invest and manage across different time scales and across different time zones. And, of course, we've got marriage broking, which is a really innovative way to connect market participants with different goals and different risk appetites and bring their collateral together more efficiently. And all this taking place with a heavy emphasis on TriParty repo. So, christian, give us that big picture about TriParty and also basket trading.

Speaker 2:

Yes, the banks and the services, and also obviously the type of collateral, are becoming increasingly global and in the past the reliance on bilateral rather than tri-party relationships was making the global financial system more vulnerable have this flexibility to allow collateral to be allocated out of one source account to various counterparties with various collateral eligibility criteria.

Speaker 2:

So you have actually the best of both worlds you can access the counterparties quickly and also you can dispose over all of the spectrum of the collateral that is actually the eligible collateral.

Speaker 2:

Now the regulator we've seen in the last episode has been increasing through regulation the demand for the eligible collateral. But collateral itself is a risk if you invest into a repo transaction, but then on top of that risk, you have the operational risk by itself if the wrong piece of collateral is being allocated and TriParty actually allows to mitigate that operational risk. To mitigate that operational risk, that operational risk is simply an error which happens because of a process or even people keying in the wrong data. When it comes to the delivery of the repo transaction In tri-party, you actually circumvent that error and you obviously also allocate collateral around the globe quickly and also to counterparties which are all over, regardless of the time zone, regardless of the geographical location. We see and we dive today in the show with one of our former colleagues who's now running the corporate treasury. One of our former colleagues who's now running the corporate treasury, daphne Kimenga, who manages 45 currencies, and you can imagine that he's migrating many of his bilateral repo relationships into tri-party repo relationships specifically because of that.

Speaker 1:

Okay. So, christian, this is a great time, of course for us to introduce our very special guest, and joining us in a moment will be Marc Ponzignan you remember him, of course, for us to introduce our very special guests, and joining us in a moment will be Mark Pontignon. You'll remember him, of course, from episode one of this season. Mark was talking about being able to adapt and be very agile to changing market narratives and of course, mark, you will know, works in the business development team at Collateral Liquidity and Lending Solutions and is particularly responsible for marriage broking, which, of course, is this week's star topic. But before we get to that, we have someone today who is going to be representing the voice of the client and someone who was on the show actually three years ago this month, so one of our very first shows, back when he was working in developing banking services for market participants, and that is, of course, defi Kamenga, who is now the head of trading at the Clearstream Treasury in Luxembourg and Singapore. Defi, welcome back to the show.

Speaker 3:

Thank you, andrew, I'm happy to be back.

Speaker 1:

Well, it's good to have you back, because last time you were here, of course you were talking about the importance of having very responsive banking services and credit lines for market participants so that they could engage in securities lending and repo more effectively and hit their end-of-day trading and those sorts of issues. And of course now you're heading up the trading in the Treasury Department. You're actually using those services, so you're kind of like an internal client for us here, so we're really really pleased to have you along. Since you've taken over at Treasury Trading, you've also engaged in a very large project of moving many bilateral repo relationships into tri-party relationships to improve efficiency, speed up the legal and back office side of the funding, enable yourself actually to scale and optimize your cash management. So you are very much in the position that market participants who come to Clearstream are. So I want you to tell us more about your work and the programs you're pursuing to optimize your operations there in the treasury okay, thank you, andrew.

Speaker 3:

so indeed, my, my, my function changed in december so I was requested to join treasury uh in laxamber, so I'm adding the treasury uh trading team for laxam. We have another trading team in Singapore as well. So the scope of my job cover three of the entity of Dutchable, so Clifstream Banking in Luxembourg, clifstream Banking in Frankfurt and then the funds area. And then, in terms of portfolio and scope of management, I have the money market portfolio where I do bilateral repo, tripartite repo swap, and then money market deposit, and then I have an investment book where I can invest on securities for long term purposes. That's number two. Number three we manage as well the FX activity of our clients. We edge corporate position and then we need to edge as well some part of our net interest earning. Then, number four, we have as well an issuance program of a commercial paper that we do to get liquidity in the market, mainly in euro. And then the last one is the management of part of the CLEASTREAM pension funds where we can get a purchase of securities and equities. So that's a little bit the scope of what I'm doing today.

Speaker 3:

Now, in terms of money markets, as you mentioned, when I started we had less than 40% of our investment on the money market than in TriParty repo. So we were doing FX swap mainly and bilateral repo and we took the initiative to be business enabler and to be one of the big supporters of our Coratula lending and liquidity solutions on TriParty. So we have tried to move as much as we can bilateral counterparty or business partner. We had to TriParty and get additional one that was not using our system to bring their securities and to trying to do TriParty with us. So we moved from less than 40% to 30% to now 70% of our US mainly on the US investment are done in triparty.

Speaker 1:

You're using bilateral repo, triparty repo and FX swaps, and that's down to the sort of complexities of trading across markets and time zones.

Speaker 3:

It's correct. So, indeed, what I need to add is that on the money market portfolio, we're managing 45 different currencies. Ok, we have obviously, usd, euro, gbp, yen being the main currency in terms of balance and investment that we do, and then for that we use, indeed, the three toolkit that you mentioned. So, on repo, bilateral repo and tri-party repo, fx swaps and money market deposit, and then that's basically the toolkit we have. Now, on the tri-party, we use unclear tri-party so we can directly set up our basket in the system on the tri-party and negotiate that with our business partner. We have started recently to do, as well, clear tri-party repo with our sister company, eurex, and we're looking, as well, as a next step, to trying to do some clear bilateral reports to special on GC.

Speaker 1:

Finally, with your banking hat on, because obviously you've got years of experience in servicing the needs for tier one banks, large financial market participants, as well as by side firms as well, you have to leverage lines of credit and also you have to leverage other market participants and other infrastructures in your daily operations. So you really are not just the Clearstream guy. You're sitting there as part of an ecosystem of money managers within market infrastructures between Europe and the US as well.

Speaker 3:

Indeed. So we're using the Troy Party platform of CleanStream for the majority of our trading in the US, mainly on the European time zone. Now, from a timing perspective, the investment starts in Singapore because I need to mention that currently almost 50% of all the US investment are done in Singapore and they're helping as well to be business enabler and to support the CLLS product suite and then the remaining then go in Luxembourg within my team and we finish the day CET time in Luxembourg late around 8 pm CET. Now, due to the timeline and the end of the processing on the triparty repo on CLE Clickstream around 7.30 pm, I got my late position around 8 pm and I need to rely as well on other toolkits to try to invest the remaining US dollar that I have and then I have subscribed as well to other TriParty platform to help me manage that residual balances at the end of the day.

Speaker 1:

Mark, here you have a fairly typical corporate treasurer client scenario and you're the guy to talk to about that and also the advantages that marriage broking can bring. Now, first of all, I need you to sort of break down the business development service, which is pretty all. I need you to sort of break down the sort of the business development service, which is pretty unique, I think, to Clearstream, and the role that you can play as market infrastructure to match buy-side and sell-side clients with diverse needs for different kinds of collateral term and clients with different risk appetizers. I mean, there's a whole bunch of things that Marriage Broking can do which I've probably just mangled there. So why don't you set the audience straight and what it's all about? Hi, andrew.

Speaker 4:

Sure, clearstream has a central view right, a central view on market trends, on the trading profiles being done by between 600 and 700 clients, right, profiles being done by between 600 and 700 clients, right. So some of that trading is done in the securities finance space, in the cleared space okay, so, via products that are quite standardized in terms of baskets and profile, just like the UXGC pooling. Another portion of the securities finance in triparty is done in the non-cleared space okay, so, non-cleared triparty repo, be it repos under the GMRA, global Master Repo Repurchase Agreement or under the Clearstream Repurchase Conditions, which we will mention a bit later, or triparty securities lending trades under the Global Master Securities Lending Agreement and with this kind of a central role, we do have a view on the trends, the trading profile of clients. We see certain market dynamics, how external events, as we've had in the last few years, such as changing monetary policy, but also uncertainty, return of volatility, some, let's say, events in the geopolitical landscape that have affected somewhat the markets. We see how this translates in Shry Party.

Speaker 4:

So I would say the first component of what we do is also to provide added value, information and insights to our clients right In terms of to help them navigate the market dynamics and also see how their current strategies, from a liquidity management, a risk management standpoint, can be supported by current trends, right?

Speaker 4:

So this is one aspect, and the second aspect and this is central to my edge broking is the fact that, with the information we have on what clients are doing new clients entering the repo space on the buy side, be it corporates, be it ministries of finance but also what the banks are doing in terms of refinancing portfolios, on what type of tenures, we can make introductions so a client can come to us, to our desk in fact, and share with us what is their ask and their goals.

Speaker 4:

So it could be, for example, we are looking to finance this specific portfolio of bonds or equities or even investment funds over this tenure because we are targeting to increase our LCR or targeting liquidity coverage ratio, or because we are targeting to improve our net stable funding ratio, and we will kind of make this ask, profiling, a match-working profiling, which then we can inject into the tools we use to find potential candidates on the other side that we see are good or strong matches, to lend them what they are looking for, so cash or securities and accept the baskets of securities the bank on the other side is looking to finance baskets of securities the bank on the other side is looking to finance.

Speaker 1:

Obviously, this is all down to some pretty advanced technology that allows you to get a market snapshot with anonymized data. Of course, you're already contracted with all the people who are participating in the system, so you've got all the legals in place to engage with them, and they've got all the legals in place to engage with each other because of the clearstream repurchasing conditions, which is quite a major step forward, isn't it, in reducing your sort of back office friction and timescales? Yes, exactly.

Speaker 4:

So this is actually a first point and I would kind of bounce on the first point you made anonymization. Okay, everything we do in the mileage booking context is anonymized. Okay, at no instance, uh, we disclose information of a client that they are not, uh willing to disclose. Okay, so it's it's uh. There's a lot of parameters that enter into, uh, into the exercise, which I will not cover in detail here, but the bottom line and this is important to understand is that we want to act as a facilitator for clients to connect together, expand their trading network and have new opportunities to invest or access liquidity, but at no time we would disclose information on the trading of a client to someone else, right? So it's anonymized. Very important to mention. And, yes, this is a basket trading. So basket trading means tri-party and all the clients we are talking about here that are part of the exercise and, of course, the exercise is optional. You don't have to be part of the marriage broking profile, but if you're interested, you can definitely benefit from it All these clients are tri-party clients, which means that they're all clients that have signed up to our global collateral management service agreement, which is the umbrella agreement that gives you access to all the tri-party services, be it cleared repo, non-cleared repo, tri-party securities, lending, margining, umr, et cetera.

Speaker 4:

Right, you mentioned the CRCs, so the clustering repurchase conditions. This is an optional additional master trading agreement for repos that clients that we've connected through the marriage broking process, for example, with a new corporate they had no relationship with, or a new ministry of finance, or even a new bank they were not trading with previously and they don't have a master trading agreement yet with that bank. When you are part as a client of the ClearStream Repurchase conditions network, it means that you've adopted this standardized, simplified repo trading agreement that gives you access to a number of clients. Okay, there are about 80 to 90 clients currently signed up, with a strong portion of that actually trading right now, okay. Okay, and this facilitates the time to market.

Speaker 4:

Okay, between the time you've identified new counterparts you can exchange liquidity with that meets your risk profiles, that meet the assets you want to exchange, your goals from a balance sheet standpoint. Okay, it reduces the time to market because you do not have to negotiate a bilateral master trading agreement. There's one off the shelf you can use. Okay, so important also to mention that Clearstream, in this context, remains a tri-party agent, so we are providing only agency services, be it operational with the tri-party service, or be it in terms of introductions. We're an agent. The clients in the end trade together. They face each other as principal. Whether it's under GMRA or under the CRC, the logic is the same.

Speaker 1:

Defy. I want to come to you and sort of get the treasury perspective on this. You know Clearstream's role here is at the center of an ecosystem of market participants and infrastructure. We know there are changes afoot coming potentially to do with Europe following the US for clearing rules on US treasuries, which I know I'm not allowed to mention Sorry, christian because I've mentioned it every show. We know there's lots of things like that happening, so give us your view. Is this the future? Are you sort of representing now what the modern treasurer's toolkit looks like and how do you expect it to develop over the next couple of years?

Speaker 3:

We have seen, with the move from bilateral to tri-party, the booking of our trades, the processing at the back office and the settlement of the trade being done much quicker than a bilateral repo. So it gives them time to trade and to back office to focus on other tasks than to try to verify those type of trades, than to trying to verify those type of trades. So this is a significant, important element about the efficiency and the operational improvement. And then it is back as well to some of the priority we have on the CFO area. I mean Treasury is part of the CFO area where the CFO has five priorities. One, he supports the economic value of the group and then we do that through the net interest income and the investment that we're doing in Luxembourg and Singapore.

Speaker 3:

Number two is the improvement of risk management. So with a tool like TriParty we have a better view of our requirement versus what the Tri-party platform can do and do the fine-tuning of that and thanks to the operational people and I'll come back to that part Number three we have is, as well, improve efficiency and then with the technology that we're using and then the way we're booking those tri-parties is really a proof of that. And then the number five of that is people and collaboration, and that I can tell you that the knowledge of the system is one thing, but we have increased the number of counterparty that we've been dealing with, and then myself and the treasurer were in London me too where we had to see 20 to 25 counterparty and discuss about those tri-party evolution and so on. The other thing is the closer contact as well on people at collaboration with our relationship manager and the business development team, with Mark being one of them, and then operationally as well and I need to thank the operational team of GSEP to support us on that new contracts that we have currently or we had in the past five to ten years and trying to do a cleanup of that. So we had a very good support from our relationship management team and especially the GSF operation helped us navigate through that complex world of mapping our requirements to the investment policy and trying to get the best match of that through the appendix A, which is representing our basket setup. So that's a part that I wanted to mention.

Speaker 3:

Now, on the clearing, we're going to face in two years a mandatory clearing in the US and then that will push us probably to trying to revisit or improve the way we manage our US investment today, especially for the securities that will be part of that scope US Treasury. So today, on top of TriParty, we do have access to the clearing in the US via sponsorship access when we can trade UST clearing in the US via sponsorship access when we can trade USD during the day and late on the evening CET time, and we have as well, as I mentioned at the beginning, starting to do a clear tri-party repo there. And then the discussion will be if that setup we have, at least with Eurex GC pulling will be recognized in the future. But at least we already have a foot in that discussion via our sponsorship access to FICC.

Speaker 1:

And Mark, coming back to you, really, business development is all about thought leadership in this space and we've talked quite a lot about the product and the way that it can sort of interact with both the sort of the uncleared and the cleared markets. But tell us, where do you see the marriage broking, product developing and you know what do you think the repo toolkit looks like a couple of years from now?

Speaker 4:

So our role from a business development perspective is to ensure market practitioners, traders, heads of treasury like DeFi, for example have a clear view on the toolbox that is available to them and that, for the right challenge or the right goal, they opt for the right solution. So, in fact, these solutions tend to be quite complementary in the sense that, via cleared solutions, you have access to a certain standardization and through this standardization and the fact that there's a central counterpart in the middle, you achieve lower risk. So you can expand in terms of scalability, because your counterpart is a CCP, which has a clear benefit on the balance sheet, is kind of set up with similar parameters, and therefore you have access to a central tool in the European market that provides a certain stability and scalable access to liquidity On the other side, in some instances, a treasurer needs to manage relationships with his counterparties. He may need to have tailor-made granularity in terms of baskets he uses. He may need to deviate from certain standards with some counterparties in a different way than with others, and that's where the non-cleared area is very useful. To be fair, over 90% of the baskets in the non-cleared space are tailor-made, which means that the two participants will agree specifically on a set of rules that determine eligibility, concentration limits and haircuts, and this is a very important tool to be able to fine-tune your liquidity management and trading with certain counterparts.

Speaker 4:

I mentioned earlier the importance of balance sheet ratios in that context. If you are looking, for example, to access net stable funding ratios, then you need to trade, probably ideally, with certain counterparties like corporates or other public sector entities. But you also may need to refinance, ideally, a certain profile of assets right when you borrow the cash from, let's say, the corporate, a certain profile of assets that, let's say, makes the NSFR benefit for you bigger, right. But you are right. I mean there is a clear thought leadership in the function we have on the business development side and this translates in the marriage broking as well. Some examples include when we have a new client that comes to us that is very long in terms of, and they are lacking optimal solutions with low operational impacts on them in the market and they want to inquire what repo would be like. I think we have a key role to play to show them the type of remuneration at least ranges of rates, they could achieve for a certain level of collateral quality that meets their risk parameters and certain tenures they can propose and also work with them on optimizing that okay, so that they access a number of counterparties. They can diversify their trading counterparties while achieving their profitability goals and also respecting a certain risk framework.

Speaker 4:

More often than not it's difficult to deviate from as an entity. So I think that is very important. But also, if I'm going to make the bridge between the cleared space and the non-cleared space, what we have been working on from, let's say, on the product side of the team, some of our colleagues have been working on the reuse potential you can do between these different products. Okay, reuse has always been at the core of the repo market. It's embedded in the trading of repo and via the marriage broking, we also present to players that are receiving collaterals opportunities to reuse that collateral, perhaps on different tenures, when they have strategy, for example, to lend net stable funding ratio but borrow liquidity cover ratio, or the other way around. But the reuse between product, between the cleared space and the non-cleared space, is also very interesting.

Speaker 1:

Okay, great, well, listen. Sadly, we have to draw the show to a close at this point, but I just want to say a huge GFF Thank you to our two very special guests today, and that is, of course, defi Kamenga, who is the head of trading in the treasury team there at Clearstream in Luxembourg and Singapore. Defi, thanks very much.

Speaker 3:

Thank you, Andrew.

Speaker 1:

The live GFF audience goes wild there for Defi and also give it up big time for Mr Mark Ponsignor, who is business development and collateral liquidity and lending solutions, and, of course, the man who is in the hot seat when it comes to marriage broking financially. Of course, mark, thank you very much.

Speaker 4:

Thank you, Andrew.

Speaker 1:

So a big virtual studio. Thank you there for our special guests and also, of course, a big virtual studio. Thank you for the man who put this show together behind the scenes, without whom, of course, there would be no GFF podcast, and that is my co-host, the GFFBFF, mr Christian Rossler. Christian, thanks for joining us.

Speaker 2:

Thank you, andrew, always a pleasure.

Speaker 1:

Okay, good, and Christian will be back next month, as will I, and we'll have some more very special guests here to go in-depth and under the hood for a good half an hour of exciting chat about the world of securities, lending, repo and global funding and financing. And don't forget to join us on our linkedin page that's linkedincom slash company, slash clear stream, where you can network with everyone who's on the show. You can network with mark, you can network with defy and with christian and with me and with anyone else who's been on the show and find out more about the things that are going on at collateral liquidity and lending solutions, and with anyone else who's been on the show and find out more about the things that are going on at Collateral Liquidity and Lending Solutions and, of course, across the whole Clearstream and Deutsche Börse group. And do make sure you find us on your favorite podcasting app. You like us and subscribe. Well, subscribe, and hopefully like, and we will see you next month.

Speaker 1:

So in the meantime, from myself, andrew Keith Walker, and from my co-host, mr Christian Rossler, bye-bye, bye-bye, and remember. This podcast is brought to you by Clearstream Banking, one of the main sponsors of the GFF Summit every year in Luxembourg and features members of the Clearstream team and special guests expressing their personal opinions, not the opinions of Clearstream as an organization. There's no representation made as to the accuracy or completeness of information in this podcast, nor should it be taken as legal, tax or other professional advice. See you next month.