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Collateral challenges and other pressing topics in European Market...Opportunity for growth.

December 5th, 2017, at the Global Custody Forum Conference at London, I (Viraj Kulkarni, Founder and CEO of PIVOT Management Consulting, India) was a co-panellist along with Guido Wille, Member of the Executive Board, Clearstream; Habib Motani, International Financial Markets Lawyer, Clifford Chance. The moderator being Vikesh Patel, Strategic Relationship Management, SWIFT. The event was attended by over 100 professionals from the world of Securities services, from across the globe....


Topic for the Panel: Collateral challenges and other pressing topics in European Markets

Collateral management is transforming under the new regulatory framework. Explore the main regulatory drivers impacting collateral, the implications of the new and constantly changing regulatory landscape and the changes in the European market behaviour.

Reproduced below are my thoughts as expressed at the said conference:


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A couple of months ago, I wrote a paper on the Indian Capital markets- It highlighted the Vanishing Mysticism and introduction of Enabling Ease, that’s propelling the growth of the Indian Market.

As Europe inducts the game changing step of transiting fully into the T2S model and adopts the new Collateral Model, I see similarities with a similar exercise in Asia, more specifically India. This was driven by Indian Regulators (especially SEBI), in the late 1990s. SEBI then decided to harmonize the multiple and complex trading and settlement operational processes including the unsophisticated Collateral systems, that existed and made Indian Capital markets, an Operational nightmare. The Indian market complexities were of a kind different from those of Europe’s multiple product types- multiple jurisdictions; multiple ways of holding stocks (Omnibus/ Segregated) etc.


In my belief the T2S will banish the mysticism around the existing processes. The acceptance of change will facilitate greater ease of doing business and greater competitiveness vs other regions (be it US or Asia). The mysticism around the web of existing rules, regulations, operational processes, business processes will be replaced by greater ease of doing business. It adds a competitive edge while meeting Regulatory Compliance (read ESMA). Such a change will lead to explosive growth, build stronger capital market and banking. 


Most of the benefits that occur on account of T2S will accrue in the case of Collateral management roll out.The transition of the collateral management process from the existing format to the Clearing house format is a gigantic step- and here to stay.


What can be learnt from other geographies / markets and how can Europe play / lead in every global market


Everything else that you can think of being complex and slowing down volumes (except cost of human resources and technology driven solutions) existed in the Indian Capital Market!  There are lessons in these for Europe – let me elaborate- India then had 24 Exchanges (read countries wrt Europe), multiple byelaws, multiple Operational processes, a limited OTC market, etc., challenges of transition from open outcry to Electronic; from physical to demat, a slowly evolving banking system, limited high quality collaterals, retail level investors etc. These and many more challenges slowed the development of Capital Markets, wealth creation and Economic growth.


Successive governments in India and the Regulators (read SEBI), focused on enabling Harmonization of processes while advocating Automation. The change to a singular model Trading and settlement systems replaced the 24 system that existed. The change had a dramatic effect- The trading community/Investors were quick to adapt, setting the tone for explosive growth in volumes. The Market also became robust and attracted more Foreign Investors. Change driven by Regulators are more timely and certain in implementation, than when left to market!  Volumes shot by 15 X over a decade and half, without any accompanying long-term issues/open ends.Europe post the full rollout of T2S, would have harmonized the more complex and diverse environment. I feel it will would lead, the way forward and set standards of excellence for others to follow.


The case for harmonization and standardization – where and how – to drive efficiencies.

To think of it- Collateral management would evolve and lead to:

  1. Harmonization of regulation and processes; the web of mysticism will be gone

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