International central securities depository Euroclear Bank plans to offer same-day cross-border securities settlement in four Asian markets - Australia, Japan, Hong Kong and Singapore - in August, stealing a march on rival Clearstream, which has similar plans for Asia.
As a result, dealers will be able to settle their securities transactions on the same day they give instructions to Euroclear Bank, instead of one day after, due to the time differences between Asia and Europe. This means dealers will no longer have to finance their positions by having to incorporate the expected value of the transaction the next day.
"It will help clients benefit from greater settlement efficiency, reduced risks and shorter durations of exposure as a result of settling transactions on a same-day basis within Asia-Pacific time zones," said Olivier Grimonpont, director and head of collateral services at Euroclear Bank in Brussels. "The fact dealers could settle on the same day gives them more comfort as their final position is known to them more quickly."
Euroclear Bank also plans to launch a link with Korea Securities Depository in September to offer settlement, custody and related services for Korean Treasury bonds and monetary stabilisation bonds.
Grimonpont says he expects the percentage of foreign holdings in Korean government bonds to increase once the country is included in leading global bond indexes such as Citi's World Government Bond Index, which could take place by the end of the year if the Korean government scraps a 14% withholding tax levied on foreign investors.
Clearstream, the securities settlement and custody unit of Deutsche Börse, started offering same-day settlement on four Asian currencies - Hong Kong dollars, yen, Australian dollars and Singapore dollars -in March this year. The group says it would expand this service to include securities settlement among these four markets.
Philippe Metoudi, the Hong Kong-based Clearstream board member responsible for the group's Asia-Pacific, Middle East and African businesses, said Clearstream's real-time settlement includes cash netting, securities netting and securities financing, helping to meet the demands of the fast-expanding lending and repo market.
Metoudi said Clearstream had chosen to launch same-day settlement on the four currencies ahead of securities due to customer demand: "They were asking for market settlement solutions as efficient as those offered in US dollars, euros and other major currencies so as to materially reduce their funding costs and be able to have better cash management."
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