The global pandemic has been significantly challenging for the industry as a whole. In this two-part instalment of the Chat with Valérie series, we will explore how Euroclear Bank has been responding to the needs of its clients and the markets during the unprecedented period.
In part 1, Valérie will share with us how Euroclear Bank has been addressing its clients’ liquidity challenges and managing its own treasury position.
Valérie: It has indeed been a stress test for everyone involved in our industry. I believe we have proven the robustness of our systems, but it takes more than just systems to keep a company like Euroclear running effectively. Our success is partly as a result of the investment we have made in our business continuity plans, but a very large part of it comes down to the brilliant people we have in this organisation. I am exceptionally proud of the resilience shown by both our people and our systems, enabling us to continue to offer high-quality services to our clients under the unprecedented market conditions.
Valérie: We have had to face up to the same challenges as other financial institutions. The first thing we had to do was to work out how to manage our own funding, liquidity and reinvestment operational activities during a lockdown.
We had to put specific arrangements in place to ensure the safety of our people from our Treasury team by adhering to social distancing guidelines. So, we split the larger team into two, and then alternated the weeks on which each team was physically present in the office – with a deep cleaning of the premises every weekend.
Despite the market challenges, we have been able to adhere to our conservative risk appetite throughout the period which is especially important given our role as a FMI.
Valérie: What we have all been through has highlighted how important our resilience, as a financial market infrastructure, is to the continued operation of the markets and our clients’ business activities.
Our clients were depending on us to continue providing safe and efficient settlement, custody, and collateral management services, and do this in a resilient way, maintaining the continuity of all our global services.
I am proud to say that since the start of the pandemic, we have been able to maintain our service levels and accommodate the tremendous increase in volumes that have resulted from the volatile market conditions.
To ensure continuity of the service our clients have come to expect from us, we seamlessly switched to a remote working model with over 90% of our employees now working from home.
Also, to support our clients in these challenging times, we exceptionally opened our system on a weekend to allow them to clear their settlement backlogs.
And, through open and regular dialogue, we have been working closely with clients to address their settlement and triparty fails which has helped them free up much needed sources of liquidity.
Valérie: Yes, absolutely. More than ever, our clients are looking to optimise their holdings and maximise their liquidity options – in an extremely efficient way.
And that is precisely what our Collateral Highway has been built for. By connecting our clients with the largest community of financial institutions, including dealers, CCPs, money market funds, central banks and asset managers, they gain access not only to prime liquidity sources but also risk mitigators. Our Collateral Highway’s fundamental strength is the depth of community users; even in extreme conditions, any of our clients can find a counterparty and tap into the source of liquidity.
In addition to a comprehensive eco-system, as a triparty agent, we provide our clients with the ability to finance large portfolios with a limited number of transactions. In fact, using just one transaction, they have been able to finance multiple lines of securities while we take care of the operational aspects such as matching and settlement, as well as the risk factors including eligibility and concentration.
As for settlement, we saw high levels of activity in the first weeks of March. The market was battling increased volumes, a back-log of unmatched instructions and a high number of settlement fails. I’m pleased to say that our STP settlement system was able to handle the peak in volumes and our integrated fail-driven securities lending & borrowing greatly mitigated the risk of fails for Euroclear Bank’s clients.
In part 2 of this instalment, we will explore, amongst others, how Euroclear Bank has been responding to the market needs - specifically, the financing activities of corporates and governments through primary market issuance. Stay tuned!
