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Frontclear structuring smoothens out repo transaction for Armswissbank

Third repo with EBRD demonstrates easier access to liquidity for the Armenian bank

AMSTERDAM, 11 February 2019 — Tapping the global capital market for liquidity has become easier for Armenian bank, Armswissbank CJSC as evident in the third Frontclear-structured and -guaranteed repurchase (repo) agreement with European Bank for Reconstruction and Development (EBRD).

The third repo agreement recently completed figured an AMD 2.16-billion (USD 4.4 million) loan facility to Armswissbank for a period of one year against Armenian government US Dollar Eurobonds.

“Our first transaction was completed in March 2018 and involved significant preparatory work. It then opened up opportunities for Armswissbank to tap liquidity in the global capital market in quick treasury type transactions. With three successful transactions in a row, this shows that this structure serves as an effective and quick liquidity tool for Armswissbank and possibly for other Armenian commercial banks,” Andrei Shinkevich, Senior VP Frontclear said.

Since March last year, total notional value of repo transactions between Armswissbank and EBRD have reached USD13.5 million. All of which were 100 percent guaranteed by Frontclear.

“Our continued success in accessing foreign funding allows us to remain responsive to the needs of our customers. Furthermore, our sustained collaboration with  international market players solidifies our position in the Armenian financial sector and exposes us to transactions adopting international best practices,” according to Karen Turyan, Armswissbank Deputy CEO – Director of Investment Department.

“These transactions were made possible by improving the legal and regulatory environment for derivative and repo transactions in Armenia, a result of the Armenia’s Central Bank’s efforts and EBRD’s policy engagement. EBRD is committed to provide further technical expertise and continued participation in the AMD repo market with the view to support further development of the Armenian Dram,” Aude Pacatte, EBRD Director of Portfolio Management, noted.

Frontclear, as part of its technical assistance program, has completed implementation of the Money Market Development Framework (MMDF) in Armenia in April 2018. This effort assisted regulators in laying the groundwork for further money market development in the country.

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Frontclear shares key considerations for reforms in Mongolian capital market

EBRD RTD in Mongolia

(Photo with representatives from Frontclear, Bank of Mongolia, EBRD and Ministry of Finance of Mongolia)

In light of the ongoing legal and regulatory reforms in Mongolian capital market, Frontclear SVP Andrei Shinkevich joined a recently held roundtable with market regulators and players in Ulaanbaatar on 01 February 2019. In this forum, he highlighted the need to improve trading and settlement systems as well as legal enforceability of transaction documents in the holistic approach to develop money market in Mongolia.

Frontclear has been supporting money market development in Mongolia through the issuance of financial guarantees to money market transactions involving local banks and conduct of technical assistance that addresses other hurdles.

The roundtable discussion, titled “Capital Markets Legal and Regulatory Reform in Mongolia” was organized by European Bank for Reconstruction and Development and Ministry of Finance of Mongolia.

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Frontclear speaks on money markets at AFIForum 2019

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In the recently concluded Asia Financial Institutions Forum 2019 in Bangkok, Frontclear SVP Andrei Shinkevich discussed the value of money markets in the functioning of financial markets at large. He noted that building a stable, inclusive and liquid money market would result in optimal channeling of household savings into productive investments.

Shinkevich was joined by other money market experts from Asian Development Bank, Nomura International (Hong Kong) and State Bank of Mongolia in the panel on Money Markets Matter: Mitigating and Managing Risk.

AFIForum 2019 was attended by representatives from over 300 key players in impact investing and financial sector in Asia and all over the world. Frontclear is one of the sponsors of the two-day event.

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Frontclear concludes landmark transaction with Ghana’s Fidelity Bank and Societe Generale

JANUARY 2019 – Frontclear, Fidelity Bank Ghana and Societe Generale completed a USD40-million cross-currency total return swap transaction.  The trade marks a first-of-its-kind cross-border deal in Ghana and follows-on Frontclear’s two-year technical assistance to the country’s money market development.

Cross-border transactions in Ghana typically face operational and legal challenges, such as constraints to use local currency securities, enforceability concerns on key legal provisions of ISDA and GMRA documentation, cumbersome settlement processes and the economics of executing small trades in challenging markets.

The one-year cross-currency transaction is structured as a total return swap (TRS) involving an exchange of USD cash funding to Fidelity in exchange for Ghanaian Cedi government bond collateral. The bonds were transferred Free-of-Payment (FoP) at the local Central Securities Depository, an innovation facilitated through the support of local regulators.  The transaction is 100% guaranteed by Frontclear.

“The Ghanaian authorities and market participants are making notable progress in developing their local capital markets and Frontclear is proud to have supported these efforts with its technical assistance program in the past two years. The success of this deal confirms that with the right blend of institutions, instruments and market knowledge, local banks can competitively access and benefit from the international capital markets.” – Hugh Friel, Vice President Frontclear

“This trade not only allows Fidelity to diversify our funding sources but also paves the way for local market-wide use of Government of Ghana local currency security in multi-currency collateralized financing solutions for tenors beyond overnight. To get a transaction like this across the line for the first time required a lot of support from our global partners, local regulators and the Central Securities depository – Another first for Fidelity Bank Ghana Limited.  Leading the development of local broad based solutions with support of our local and offshore partners is at the heart of what we do at Fidelity Bank.  It is our vision to be a world-class financial institution with the ability to adapt world-class innovation for local application in a bid to positively impact Ghanaian businesses as a basis for driving an inclusive economic growth.” – Sam Kwame Aidoo, Group Head Wholesale Bank, Fidelity Bank Ghana

“This is Societe Generale’s first cross-currency total return swap in Ghana. It demonstrates how Societe Generale is expanding its offering of collateralised financing solutions, one of the key strengths of its markets’ franchise, by adapting the underlying, the jurisdiction and the format, and by partnering with development institutions like Frontclear. This transaction also illustrates Societe Generale’s commitment, made through its “Grow with Africa” program, to foster positive transformation across the African continent. We are delighted of this first transaction with Fidelity Bank Ghana and Frontclear,” comments Jérôme Sabah, Global Head of Rates, Credit and Forex Sales for Financial Institutions at Societe Generale

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Frontclear facilitates a transaction with Development Bank of Mongolia and Societe Generale

JANUARY 2019 – Frontclear arranged and structured back-to-back USD/JPY cross-border cross currency swap transactions for the value of USD 30 million with Societe Generale and Development Bank of Mongolia.

Credit, legal and operational risks have made it very difficult for Mongolian banks to access global capital markets.  This second landmark transaction of Frontclear in Mongolia has made it possible for Development Bank of Mongolia LLC (DBM) to competitively access the swap market with foreign banks and hedge the proceeds of a Samurai bond issue into USD.  Both cross currency swap transactions were documented under an International Swap and Derivatives Association (ISDA) agreement, whereby Frontclear customized the swap confirmation to overcome legal issues in the Mongolian market.

The transactions helped to further clarify certain legal issues related to close-out netting in Mongolia, which were mitigated by effective Frontclear deal arranging and structuring.  The transaction documents introduced best practice operational and legal concepts, which were reviewed and discussed in a Frontclear organized Executives’ Roundtable in Ulaanbaatar in September 2018.  Frontclear is already planning further technical assistance in Mongolia to address those legal issues as well as other roadblocks preventing Mongolian banks effecting accessing global funding and swap markets.

“We are proud to execute our second transaction in Mongolia and the key role we have played in originating the structure and bringing Société Générale to work in money market transactions in the country. The transaction strengthens Mongolian banks’ ability to mitigate legal and operational risks and sets a benchmark for the development of Mongolia’s money market going forward,” according to Andrei Shinkevich, Senior VP at Frontclear.

“This is DBM’s first ever swap transaction with Societe Generale and we look forward to working with new partners to expand our treasury operation,” Amgalan Battulga, Head of Treasury Management of Development Bank of Mongolia noted.

“Societe Generale is delighted to have concluded this transaction with Frontclear allowing Development Bank of Mongolia to hedge interest rate and currency risks related to its Samurai bond. It illustrates the strength of the collaboration between our two institutions, Societe Generale and Frontclear, which share the common objective to participate to the development of capital markets in emerging countries,” Jérôme Sabah, Global Head of Rates, Credit and Forex Sales for Financial Institutions at Societe Generale said.

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Frontclear support to developing local money markets in Zambia

LUSAKA, 08 January 2019 – Amid further demand for interbank and money market development in Zambia, Bank of Zambia (BoZ) and Frontclear Management B.V. joined forces to develop an optimal regulatory and legal environment as well as conducive market infrastructure.

Due diligence and discussions between Frontclear, Bank of Zambia and other local market participants confirmed the need for further technical assistance. With the legal and regulatory review on enforceability of ISDA/GMRA in Zambia as a priority, Frontclear agreed to review the new Insolvency Act and relevant laws and regulations and benchmark these against international best practice, and come up with an action plan detailing necessary legislative actions and other recommendations. Frontclear successfully completed a similar initiative in African and other jurisdictions. Frontclear and BoZ will jointly host a market wide conference early this year to sensitize the market participants on the results of this legislative study.

Additional options are also being considered that include the introduction of a Money Market Development Framework diagnostic tool.

“We are delighted to support the development of local money markets in Zambia. With the help of our regional and global partners, we are confident that the partnership will lead to Zambia’s capital markets gaining further depth and liquidity and thus supporting economic growth and poverty alleviation,’’ Philip Buyskes, CEO of Frontclear, noted.

Frontclear has played an active role in the Zambian interbank market, having conducted training programs to local banks on a range of topics that include legal documentation for derivatives and repo (ISDA/GMRA), products (fixed income/derivatives) and risk management. Its partnership with ACI Zambia has delivered free training activities to over 150 participants from local banks in 2016 and 2017.

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ODI Fellowship Scheme signs Frontclear as newest partner

Partnership expected to enhance public sector knowledge on money and interbank markets

AMSTERDAM and LONDON, 05 December 2018 – Development finance company Frontclear Management B.V. partnered with Overseas Development Institute (ODI) Fellowship Scheme to expand its network of market experts and leaders that provide capacity development to regulators in selected emerging markets and developing countries.

Signing as ODI Fellowship Scheme´s newest partner, Frontclear and ODI will work together to strengthen the capacity of regulators and other institutions relevant to the development of local money markets, by responding to requests for the placement of young experts. Both parties will co-sponsor the financial needs to realize a placement, with Frontclear additionally bringing in its money market experience and network and ODI its proven ability to source and effectively post qualified fellows.

The partnership called ‘ODI/Frontclear Fellowship’ will upgrade local capacity in target beneficiaries through additional expertise in money market development, with the end goal of building an inclusive interbank market in these countries. A minimum of five fellows will be funded annually to work in Frontclear’s countries of operations, spanning Asia, CIS, Africa and Latin America.

“The ODI/Frontclear Fellowship offers great opportunity for our beneficiaries to gain from ODI´s innovative approach and solutions to institutional limitations in the public sector and Frontclear´s expertise in removing barriers to interbank market transactions. Banking on our combined footprint in our target markets, I am confident we could make a great impact to the countries where our fellows will be posted,” according to Ingrid Hagen, Frontclear Vice-President Strategic Projects.

ODI is an independent, global think tank, working for a sustainable and peaceful world in which every person thrives. It harnesses the power of evidence and ideas through research and partnership to confront challenges, develop solutions, and create change.

ODI Fellowship Scheme, which has been active since 1963, provides high poverty, low income countries with junior economists and statisticians of high caliber to fill in the gap in local capacity. These fellows are normally designated in the ministries of finance or planning and in some cases, in the ministries of trade and industry, regional integration, agriculture, environment, water, health and education. The partnership with Frontclear expands on this base by integrating money market specialization in their portfolio as well as central banks as counterparties.

“The ODI Fellowship Scheme provides capacity to developing country governments in economics and statistics where gaps in local capacity exists. The target beneficiaries for this partnership with Frontclear can employ high caliber economists to improve their ability to strengthen the understanding and capacity of money market regulators.” Robin Sherbourne, Head of ODI Fellowship Scheme, said.

The initiative is part of Frontclear Technical Assistance Programme (FTAP) Partnership Facility, which mobilizes financial support from regional and global bank and other financial institutions to deliver much-needed capacity development programs tailored to the needs of emerging and frontier markets.

“Participating in this initiative would mean creating lasting impact to local money markets of our beneficiaries, thereby contributing to the overall development of these countries. Frontclear remains committed to rallying regional and global support for this unique endeavor,” Hagen concluded.

For more information on the program, visit https://www.odi.org/odi-fellowship-scheme or download the ODI_FELLOWSHIP_LEAFLET_2019-DIGITAL (1).

 

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Frontclear and ABN AMRO Clearing team-up to address clearing infrastructure challenges in emerging and frontier markets

Partnership to support best practice in clearing and settlement

AMSTERDAM, 12 November 2018 – On 12 November, a Memorandum of Understanding was signed by Frontclear, the development finance company, and ABN AMRO Clearing, a leading global clearing firm. This MoU highlights their shared commitment to address clearing and settlement challenges in emerging and frontier markets in Africa, Asia and Latin America.

ABN AMRO Clearing agreed to provide project and institutional review recommendations as well as knowledge and advisory services on clearing and settlement infrastructure. The clearing firm pledged support to Frontclear research on innovations and developments in clearing and settlement structures and systems, including blockchain.

“This partnership with ABN AMRO Clearing supports our growing footprint on catalyzing stable and inclusive interbank markets in emerging and developing countries. We welcome a leading global clearing and financial services provider like ABN AMRO Clearing as a technical assistance partner. Their involvement holds a massive opportunity for our beneficiaries in target countries to upgrade current clearing and settlement understanding, knowledge and facilities,” noted Ingrid Hagen, Vice President Strategic Projects at Frontclear.

Frontclear draws from its proven track record supporting interbank transactions and building relationships with stakeholders and beneficiaries in developing and frontier markets. Its network includes key officials in central banks, capital markets authorities, stock exchange and commercial banks in the mentioned jurisdictions.

To-date, Frontclear has trained over 900 obligors and regulators in over 13 countries, developed 11 technical assistance country strategies based on full capital markets analyses, signed 10 official partnerships with local regulatory agencies and market associations, and has issued over USD 240 million in guarantees on transactions with USD 490 million in notional.

“ABN AMRO Clearing wants to lead the way to safe and transparent markets, as the need for dependable, stable, accessible markets is greater than ever. We are taking our societal responsibility to the next level by teaming up with Frontclear as a complementary partner. We commit to making our staff available to support initiatives that make local interbank markets in emerging and developing countries more transparent and efficient. This will result in enhanced access to financing for local small and midsized companies.” said Vicky Sins, Global Director Corporate Hedgers and responsible for the Global Sustainability Program at ABN AMRO Clearing.

The Frontclear and ABN AMRO Clearing partnership will be officially introduced to ABN AMRO’s global network in an official event on 12 November 2018 in Amsterdam.

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Frontclear facilitates a landmark transaction with State Bank Mongolia, EBRD and ING Bank

July 2018. Frontclear arranged and structured a USD 30 million cross-border collateral swap with the European Bank for Reconstruction and Development (EBRD), enabling a further repo transaction between the Mongolian State Bank and ING Bank. It is the first time in Mongolia that a repo or collateral swap transaction has been done with local currency collateral cross border and a first such deal involving a commercial bank.

In this transaction, Frontclear borrowed USD 30 million in US Treasury bonds from the EBRD and then on-lent them to the State Bank LLC in Mongolia against Mongolian local currency government bonds in a collateral swap transaction. Frontclear guaranteed the transaction to EBRD. With the US Treasuries in hand, State Bank LLC borrowed funds in a repo transaction with ING Bank N.V. Singapore branch.

Credit risk, legal and operational risks plus wrong way risk concerns, has made it very difficult for Mongolian banks to source hard currency liquidity against local collateral in global capital markets. The landmark transaction made it possible for State Bank LLC to competitively access funding from foreign banks. It also helped clarify certain legal and operational issues related to bond trading in Mongolia, which were mitigated by effective Frontclear deal arranging and structuring.

Both collateral swap transactions were documented under an International Swap and Derivatives Association (ISDA) agreement, whereby Frontclear customized the swap confirmation to legal issues in the Mongolian market. The repo transaction was closed under a Global Master Repurchase Agreement (GMRA). The transaction documents introduced best practice operational and legal concepts, which will be further reviewed in a Frontclear organized Executives’ Roundtable in Ulaanbaatar in September 2018.

“We are proud of the catalyst role we have played in originating the structure. The transaction provides a new mechanism for Mongolian banks to utilize local collateral in international capital markets and sets a benchmark for the development of Mongolia’s money market going forward.” – Andrei Shinkevich, SVP Frontclear
“We expect this transaction to generate positive ramifications for Mongolia as it enabled know-how transfer to the local market and should have a demonstration effect on other potential followers from global financial markets.” – Aude Pacatte, Director, Head of Portfolio Management EMEA, EBRD

“State Bank is delighted for successfully executing this inaugural transaction that provides possibilities to practice the financial instrument in line with international best practice and facilitates development of interbank money market in broader perspective in Mongolia.” – Chinbat Lkhagvasuren, Director General, Treasury Department, State Bank of Mongolia

“We are proud to have been given the opportunity to play an instrumental role in the further development of the capital market in Mongolia, together with State Bank of Mongolia, Frontclear, and EBRD.”– Erik Versavel, ING Mongolia Country Head

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FMDQ and Frontclear partner to establish clearing infrastructure in Nigeria

31 May 2018. Today, FMDQ Clear Limited and Frontclear signed an agreement to jointly enhance Nigeria’s first central clearing house structure, with the support of a settlement guarantee fund. The collaboration is the culmination of a long-standing working relationship focused on improving how the Nigerian OTC financial market functions and follows-on an initial introduction via the International Capital Market Association (ICMA), of which FMDQ is a full Member and Frontclear a long-standing partner.

FMDQ Clear Limited (FMDQ Clear) and Frontclear have joined to realize a first in the Nigerian market.  Combined, they will facilitate a clearing structure to strengthen the OTC market liquidity. FMDQ Clear, a central clearing house positioned to deliver end-to-end clearing and settlement services that will help enhance integrity and eliminate the inherent risks to bilateral trades in the Nigerian capital market, will be backed by Frontclear’s core financial guarantee product, thereby improving the creditworthiness of participating counterparties and reducing initial set-up costs. A wholly-owned subsidiary of FMDQ OTC Securities Exchange, who provides a platform for the registration, listing, quotation, noting, trading, order execution and trade reporting of fixed income, currency and derivatives products in the Nigerian financial markets, FMDQ Clear has been engaged by the OTC Exchange to carry out post-trade services for transactions executed in its cash and derivatives markets.

The Frontclear guarantee will, in practice, function like a settlement/credit guarantee fund typical to more developed financial markets. Upon default of a clearing member, Frontclear guarantees any mark-to market losses incurred by any other counterparty clearing or dealing member(s), and up to a pre-agreed maximum amount. With this guarantee fund, FMDQ Clear can significantly improve access to a breadth of financial products such as interest rate and currency derivatives, and repurchase agreements (repos), especially for smaller dealing members who may have been previously excluded because of perceived counterparty credit risk.

A joint Frontclear Technical Assistance Programme (FTAP) project explored the feasibility of establishing clearing infrastructure in Nigeria as well as the most suitable design of such infrastructure for the Nigerian market. This effort was made possible with the support and input from key Nigerian financial services regulators, including the Securities and Exchange Commission, Nigeria (SEC) and the Central Bank of Nigeria (CBN), as well as the local banking industry. FMDQ Clear participants will have access to further Technical Assistance provided by Frontclear as needed, including trainings on repo accounting and margining, amongst others.

FMDQ Clear, which will be the first of such infrastructure in Africa, with a third-party settlement guarantee arrangement that improves on settlement finality, is positioned to becoming a world-class central clearing house, with robust risk waterfall supported by settlement guarantee fund, and strong governance and risk frameworks to clear products in the cash, repos and derivatives markets, and is exemplary of Frontclear’s development impact rationale: catalyzing transactions that support healthy money markets and stable financial systems. The establishment of this clearing infrastructure will greatly contribute to making the Nigerian interbank market globally competitive, operationally excellent, liquid and diverse, in line with FMDQ Group’s GOLD Agenda for the transformation of the Nigerian financial markets, as participating clearing and dealing members will have expanded access and in turn, be better able to serve the needs of their client base and the real economy.

“In our stride to position our markets on the path of increased liquidity and global competitiveness, the FMDQ-Frontclear guarantee fund initiative is a landmark achievement positioned to engender market integrity, which will bolster liquidity and financial system stability in the Nigerian economy.”  Bola Onadele. Koko, Managing Director/Chief Executive Officer, FMDQ Group

 

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