Sovereign Wealth Funds Case Studies
The European Investment Bank
Using OpenCollateralSM to drive operational efficiency
The European Investment Bank (EIB) is the long-term financing institution of the European Union. Its mission is to help implement the EU's policy objectives by financing sound business projects.
The Challenge
As one of the most important issuers in Europe, the EIB is a key player in the European capital markets, raising funds to finance business projects. A counterparty to most of the major broker dealers in the region, the EIB conducts large numbers of OTC derivatives transactions every day as part of its risk management process.
Given the importance of the institution, the EIB requires absolute confidence in its collateral management processes to ensure that it can accurately mark to market its derivatives book each and every day and efficiently carry out the daily margin movements in order to ensure that its counterparty risk is correctly managed.
After a decade using two different service providers for each of the collateral management and custody functions, the EIB sought a single solution provider that could deliver improved risk systems, greater technology capability and coherence through more responsive and automated processes.
The Solution
Given the importance of the institution, the EIB requires absolute confidence in its collateral management processes to ensure that it can accurately mark to market its derivatives book each and every day and efficiently carry out the daily margin movements in order to ensure that its counterparty risk is correctly managed.
After a decade using two different service providers for each of the collateral management and custody functions, the EIB sought a single solution provider that could deliver improved risk systems, greater technology capability and coherence through more responsive and automated processes.
Citi was selected to provide a collateral management solution and to act as the EIB's custodian for securities received as collateral, with responsibility for all of its derivatives collateral management functions.
Citi implemented its global OpenCollateral service, which takes responsibility for marking to market the value of the underlying derivatives and the collateral held and delivered as margin, for carrying out margin calls and effecting the settlement of the securities used in the margin process. The EIB values its own derivatives transactions in order to preserve the confidentiality of its trading counterparties.
In derivatives markets there are multiple products that require collateral, including securities financing, collateralized credit lines and repo markets. Managing derivatives collateral is a complex process – each trade must be marked to market individually, calculations made and margin calls delivered and received on a daily basis.
Citi has worked with the EIB for more than 20 years, acting as a lead manager for many of their bond issues as well as providing issuing and paying agency services on the institution's programs and payments services across the vast Citi network. The EIB was confident that Citi would be able to provide the technical prowess and knowledgeable staff to undertake the management and custody of its derivatives collateral.
This is vital because in making and receiving margin calls, Citi represents the EIB, acting on its behalf to ensure that collateral in the form of securities and cash is sufficient and complies with the ISDA Credit Support Annex (CSA) documents in place between the institution and each of its counterparties. Citi monitors the collateral movements to and from the EIB's collateral account and provides comprehensive reports each day.
OpenCollateral is fully integrated with Citi's custody reporting. This provides the EIB with full visibility of its collateral positions and a single point of contact for its entire derivatives collateral management needs.
The Result
Citi implemented its global OpenCollateral service, which takes responsibility for marking to market the value of the underlying derivatives and the collateral held and delivered as margin, for carrying out margin calls and effecting the settlement of the securities used in the margin process. The EIB values its own derivatives transactions in order to preserve the confidentiality of its trading counterparties.
In derivatives markets there are multiple products that require collateral, including securities financing, collateralized credit lines and repo markets. Managing derivatives collateral is a complex process – each trade must be marked to market individually, calculations made and margin calls delivered and received on a daily basis.
Citi has worked with the EIB for more than 20 years, acting as a lead manager for many of their bond issues as well as providing issuing and paying agency services on the institution's programs and payments services across the vast Citi network. The EIB was confident that Citi would be able to provide the technical prowess and knowledgeable staff to undertake the management and custody of its derivatives collateral.
This is vital because in making and receiving margin calls, Citi represents the EIB, acting on its behalf to ensure that collateral in the form of securities and cash is sufficient and complies with the ISDA Credit Support Annex (CSA) documents in place between the institution and each of its counterparties. Citi monitors the collateral movements to and from the EIB's collateral account and provides comprehensive reports each day.
OpenCollateral is fully integrated with Citi's custody reporting. This provides the EIB with full visibility of its collateral positions and a single point of contact for its entire derivatives collateral management needs.
By providing an end-to-end, streamlined collateral management solution and eliminating manual processes, Citi has enabled the EIB to make more efficient use of the collateral it receives.
