Tri-Party Repo: Future-Proofing Risk and Cost for Corporate Treasurers

As a Tri-Party Collateral agent in the South African Market, Strate’s Collateral Management Services (SCMS) is well positioned to manage all of these new challenges for corporate treasurers, with its proven world-class systems and service, facilitating both cash and non-cash collateral for collateralised loans as well as Tri-Party repos.

 

Tri-Party repos are becoming an increasingly more attractive mechanism for corporates to replace cash deposits to mitigate against credit counterparty risk. However, this concept needs to be sold to management.” This was the common theme noted by over 80% of delegates in two separate conferences held during 2015 by Strate, in conjunction with the Association of Corporate Treasurers of Southern Africa (ACTSA), and Strate’s global Tri-Party collateral partner, Clearstream Banking S.A. (a subsidiary of the Deutsche Borse Group).

 

Under Basel III regulations, banks receive a capital benefit by placing collateral against short-term deposits from a corporate counterpart. Moreover, under Tri-Party repo arrangements, cash deposits will no longer have to be spread across multiple banks to mitigate credit counterparty risk, as larger deposits can now be placed with a single bank, secured by non-cash collateral.

 

It is no surprise then that the local market sentiment is in line with global trends and corporate treasurers acknowledge that accepting and placing collateral is future best practice.

The delegates provided some interesting industry insights, such as:

 

  • Over 60% of respondents believed cash was not always invested properly;
  • Over 96% of respondents would prefer to secure cash deposits with collateral to generate a higher yield;
  • Over 90% of respondents believed that the costs of financing trades will increase with new regulations in the banking and insurance sectors; and
  • Collateral requirements for financing trades will increase and over 60% believed that non-cash collateral will play a key role over the expensive use of cash collateral.

 

Future challenges for corporate treasurers:  

 

 

Considering the flexibility, control and security that a repo transaction provides, and the growth of the Tri-Party repo market for corporates in Europe, sentiments are that “repos are here to stay.”

 

SCMS provides an online platform for corporates to use, which seamlessly integrates to underlying systems if need be. Daily mark-to-market, automated valuations, automatic margin calls and reporting are some of the many key features that come standard with the SCMS offering.

 

SCMS is able to efficiently manage collateral in this ever-changing market, and more importantly, is well equipped to ensure that the right collateral is used to cover the right exposure at the right time at the right place.

 

The services are free for receivers of non-cash collateral, such as corporates for term deposits, and Strate’s dedicated support desk is available to resolve any collateral-related queries. For more information contact us on collateral@strate.co.za or visit the Strate website at www.strate.co.za.

 

 

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