Colateral is a bilateral collateral management module that fosters credit risk mitigation for parties in trades in the financial market. It was developed in partnership with Clearstream, a company belonging to the business group of German stock exchange Deutsche Börse.

This system allows government securities, DI instruments, bank CDs, financial bills, debentures and others to be offered as collateral in OTC, securities lending, leasing and other transactions. This financial collateral mechanism is used widely on the international market.

Colateral operates based a portfolio concept, without tying the exposure to the offered collaterals. In this way it optimizes collateral deposits, allowing risk management in different transactions contracted with a particular counterparty.

How it works

To begin with, the participating institutions – banks and funds, for example – report the amount of the exposure that must be covered by the collateral. This value can be in reference to several transactions.

The parties define the parameters that will be used to manage the assets deposited as collateral. The main criteria are:

  • Limit above which the automatic collateral allocation process
    is triggered (threshold)
  • Minimum transfer amount to the account of the pledgee, in the case of a need
    to cover exposure (Minimum transfer amount – MTA
  • Application of a discount and maximum maturity on the security to be
    deposited as collateral
  • Minimum to be pledged as collateral

The process requires the opening of accounts in the B3 environment, for collateral transfer. In the case of assets in B3 custody there is the opening of an Allocation Account, which receives assets eligible as collateral, and of a Collateral Account, which receives the assets of the counterparty.

In the case of government bonds, held in the custody of the Special System for Settlement and Custody (SELIC) of the Central Bank of Brazil, the “Conta de Cessão Fiduciária de Alocação” allocation conditional assignment account and “Conta de Cessão Fiduciária de Garantia” collateral conditional assignment account are opened to the same ends.

Collateral is exclusively transferred by B3, regardless of the assets used. The system thus guarantees greater bilateral collateral security. When an exposure is reported, the eligible assets are automatically directed from the Allocation Account to the Collateral account of the pledgee.

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