Just a matter of weeks after CME’s European clearing house was granted regulatory approval to operate an exchange-based derivatives venue in London, today marks a further development in the establishment of exchange facilities upon which FX and other derivatives which are most commonly traded as OTC products can be executed.
On this basis, CME Clearing Europe has today announced that it is the first central counterparty (CCP) globally to receive Bank of England approval of the full segregation client protection model with enhanced protection for all bankruptcy scenarios. This new client protection model fully segregates collateral with an external custodian at the client level. The enhanced protection it offers for all bankruptcy scenarios is expected to result in favourable capital treatment.
This new account model is designed to allow the client protection and control of their securities at all times with clarity and legal certainty with regards to how client assets would be treated in all bankruptcy scenarios. The full segregation account expands client asset protection beyond European Market Infrastructure Regulation (EMIR) requirements. It is available across all of CME Clearing Europe’s OTC financial and commodity derivatives as well as futures products.
CME Clearing Europe is working with central securities depositories (CSD) and custodians to offer clients the option of holding their securities at different locations. The first CSD to offer this to their clients is SIX Securities Services. The first custodian to support this model is BNP Paribas Securities Services.
“Our innovative approach to greater protection of clients’ securities in a jurisdiction of their choice with operational efficiencies is attractive to asset managers, hedge funds and regional banks that use securities for initial margin purposes at our clearing house,” said Lee Betsill, CEO of CME Clearing Europe. “The legal framework that we have designed for the full segregation account matters to clearing members and their clients because it has been structured to provide preferential capital treatment.”
Thomas Zeeb, CEO, SIX Securities Services, commented, “For the first time in Europe, asset managers, banks and other market participants can better manage their collateral by making the best use of the pools of securities they already hold with us at SIX SIS. In the context of real-time clearing and future regulatory challenges, this is a major step forward. As a market, we in Switzerland are delighted to pioneer this with CME Clearing Europe as it also offers our Swiss clients the opportunity to benefit from these and other SIX services in Switzerland.”
Alain Pochet, Head of Clearing and Custody Services at BNP Paribas Securities Services commented, “Protecting client assets is at the heart of everything we do. We therefore welcome this initiative and are very pleased to be the first custodian to partner with CME Clearing Europe to offer account operator services for their full segregation model. This initiative forms an integral part of our wider Collateral Access solution, which allows us to offer buy-side and sell-side firms an end to end straight through collateral and custody solution for their cleared derivatives transactions.”
Daniel Berner, Head Portfolio Management, Swiss Life AG, stated: “This new partnership between CME Clearing Europe and SIX SIS makes headway for clients aiming to mitigate the credit risk in connection with the transfer of large initial margin amounts. This is crucial for Swiss insurers who have to comply with strict regulatory rules for the safekeeping of policyholder funds. The close involvement of interested Swiss insurance companies at various stages of development shows client centric focus of CME Clearing Europe and SIX SIS.”
Oliver Decker, Legal Counsel, BayernInvest, says, “We are delighted to be Germany’s first investment company (KAG/KVG) to partner with CME Clearing Europe to offer the enhanced level of protection to our clients in Germany. Full segregation ensures bankruptcy remoteness, which is an advanced structure that makes a real difference to us.”
Nadine Chakar, Head of Product Development and Strategy for Global collateral services business at BNY Mellon and Chairman of BNY Mellon CSD, says: “There is much greater complexity around the movement, safekeeping and segregation requirements of collateral these days. Working in partnership with CME Clearing Europe and our buy side clients we aim to offer them opportunities across their entire portfolios and an holistic view of their collateral at the enterprise-level.”
CME Clearing Europe lists a broad range of interest rate swaps and offers more than 200 OTC commodities contracts for clearing and provides services for CME Europe, CME Group’s London-based derivatives exchange. CME Clearing Europe offers four client protection account models to clients; net omnibus; gross omnibus; individual client and individual client with full segregation.