Northern Trust has become the first global custodian to implement a direct clearing service to the Canadian Derivatives Clearing Corporation (CDCC).
The bank cleared the first lot of cash and repo trades on behalf of the Healthcare of Ontario Pension Plan (HOOPP).
HOOPP and three other large buy-side organisations were invited to become limited clearing members (LCMs) by the Bank of Canada in order to participate in an expansion of direct clearing first announced by the CDCC last year.
“In partnership with HOOPP, we are pleased to implement this enhanced clearing capability for Canadian securities,” said Arti Sharma, president and CEO of Northern Trust Canada.
“As Canada’s capital markets work to make settlement more efficient and resilient, Northern Trust is committed to providing the support and consultation our clients need to benefit from these positive industry developments.”
Central counterparties (CCPs) around the world have introduced new clearing memberships for the buy-side in response to increased capital pressures for banks, which has sparked a wave of exits from the clearing space.
However, the benefits for asset managers and pension funds to become direct clearers include collateral netting and capital efficiencies.
“Partnering with Northern Trust strengthens our investment ability since many of our investment strategies rely on repo financing to make them work. This new setup will make HOOPP a more attractive counterparty for the banks and should ensure liquidity from this source during severe market downturns, which is good for our members,” added Jim Keohane, president and CEO, HOOPP.