Strate facilitates use of securities collateral against open derivative positions

Strate Collateral Services is proud to partner with JSE Clear to enable the acceptance of securities as collateral from investors in the equity and currency derivatives markets.

According to JSE Clear, this will result in “billions of rands in cash being released back to investors, who can use the cash for entering into more trading activity, or to address other needs”.

Absa Bank Limited is the first to adopt this service, with the first securities collateral transactions having settled on 30 January 2024.

The implementation of non-cash collateral in the listed derivatives clearing market “is an important step forward in aligning with global best practice”, said Chris Edwards, Absa CIB Head: Prime Services, Index and Structured Solutions.

“In an environment of increasing competition and margin compression, the ability to efficiently optimise collateral inventory and funding is a business differentiator. The Strate triparty collateral solution makes this use of inventory a reality,” he added.

Market participants can, via Strate’s triparty collateral platform, place 35% of initial margin in securities collateral with JSE Clear. Our seamless, fully automated solution enables clients to leverage under-utilised securities and improve cash liquidity.

Continual monitoring ensures adherence to JSE Clear’s eligibility requirements for receiving liquid South African fixed-rate government bonds and other defined risk parameters.

JSE Clear intends to expand both the percentage and eligibility of securities in the future, as well as offer the service to the commodity and interest rate derivatives markets.

The JSE’s ability to accept securities as collateral gives its investors an extra tool to more flexibly manage their cash flows and availability.

“Investors are now able to substitute expensive and scarce cash with bonds, which are sometimes considered to be ‘lazy assets’. We are delighted to provide investors with this meaningful benefit while still being able to maintain appropriate levels of collateral for JSE Clear’s risk management purposes,” said Alicia Greenwood, Chief Executive Officer of JSE Clear.

Strate’s Collateral Services brings together South Africa’s collateral community using a triparty approach with the aim of unlocking the benefits of effective collateral management. Developed in partnership with Clearstream (part of the Deutsche Borsë Group), we offer an automated collateral selection, allocation, and optimisation solution across a range of contractual obligations in a secure and trusted ecosystem.

For more information, please email collateralmanagement@strate.co.za