Clearstream announced that is offering a new settlement solution for German debt, for customers who are clearing member firms, clearing Bunds and German repos through LCH SA.
Such transactions will be able to be settled in customers’ Clearstream Banking Luxembourg (CBL) account, in addition to the Clearstream Banking Frankfurt (CBF) setup as an existing settlement location. As a result, Clearstream customers will be able to settle these transaction either in central bank money via CBF or in commercial bank money via CBL.
This new solution offers customers the opportunity to make the most of our TARGET2-Securities (T2S) market environment. Customers will be able to choose to settle their German government securities in CBF as German CSD – the closest link between T2S and German debt as issuer CSD for all German securities, while benefitting from the CBL’s securities lending and collateral management services as ICSD.
Clearstream’s new solution follows LCH group’s recent decision to extend its RepoClear service to offer clearing for cash and repo trades on German government securities via its Paris-based entity LCH SA (these securities also continue to be cleared at its London–based entity, LCH Ltd).
Wider benefits
More widely, Clearstream offers settlement of all relevant CCPs. True netting of transactions through CCP, such as Eurex Clearing as part of the Deutsche Börse Group, will offer additional benefits as offsetting trades for multiple counterparties through a CCP potentially reduces balance sheet exposure and liquidation risk for specific positions.
One-stop-shop for German federal government debt
Offering a one-stop-shop for German federal government debt, Clearstream is the natural depository for this asset class in T2S.
As the largest liquidity provider in T2S, Clearstream’s CSD in Germany offers unique economies of scale: the high Bund volumes can be netted against activities in other instruments and income and redemption cash flows can fund other T2S trading.
The secured financing market in Clearstream’s CSD in Germany includes bilateral transactions as well as flows from CCPs. This deep pool of liquidity is further enhanced by the large percentage (40%) of CSD customers being based outside of Germany.