Perspectives on European secured funding markets

Marton Szigeti, head of collateral, lending and liquidity solutions at Clearstream, and Frank Gast, global head of business and product development repo dealer-to-dealer (D2D) at Eurex, examine how clients are reshaping funding strategies in response to uncertainty, volatility, and fragmentation in securities finance markets.

Since mid-2022, the European Central Bank (ECB) has wound down its liquidity support measures and taken progressive steps towards balance sheet normalization. With this shift in monetary direction, the eurozone has moved from a situation of collateral scarcity to one of relative collateral abundance where cash liquidity is both fragmented and in limited supply. 

This shift has prompted cash takers to seek alternative sources of liquidity and to become increasingly resourceful in how they access their cash requirements. With a rise in borrowing rates, cash takers are looking to borrow against wider collateral sets and term strategies are evolving. Regulation continues to exert pressure on banks’ balance sheets, making financing decisions ever more important and reducing the time available to optimize collateral around financing on a daily basis.

On the cash lender side, new types of lenders, including a wider range of corporates, are becoming active in cleared and uncleared repo. In triparty, a wider range of pension funds and other asset owners have become active as liquidity providers.

Clearstream and Eurex, both members of Deutsche Börse Group, have experienced solid growth in GC Pooling activity as the ECB has run down its liquidity reserves. Clearstream has seen a rise in both uncleared repo and central bank pledge – the latter driven particularly by the launch of the European Collateral Management System (ECMS), the ECB platform for managing collateral used in Eurosystem credit operations.

“We see clients utilizing the single collateral account and then optimizing across central bank, cleared and uncleared repo depending on the value they can get for their collateral,” explains Szigeti. These dynamics have resulted in a rise in collateral velocity in eurozone funding and financing markets.

Transition to T+1 settlement in EU and UK

With the EU and UK scheduled to migrate to T+1 settlement on 11 October 2027, Clearstream will play an important role in facilitating this transition as a provider of settlement liquidity through its ASL fails coverage program. From a securities lending perspective, next-day settlement is likely to increase the requirement for intraday financing of securities for settlement and for unwinding securities financing transactions (SFTs).

Clearstream has developed fails prediction and liquidity forecasting tools that will help settlement participants to monitor the probability of trade fails and to take pre-emptive action when this probability rises. These predictive analytics tools, along with continuing steps to drive automation across the fails coverage environment, are key to reducing operational risk and cost in a T+1 environment.

“We anticipate that our clients will need to pre-borrow prior to fails taking place and we will rely more heavily on intraday coverage, while protecting the client against costly overnight borrowing,” says Szigeti. “This will be central to how we evolve our product coverage in this area.” 

For Szigeti, the industry has mobilized promptly and the key challenges relating to T+1 migration appear to be well understood. Clearstream and Eurex have been active in industry working groups and are working with other stakeholders to minimize disruption and to maximize the opportunities opened up by T+1.

In the cleared environment, many trades already settle on T+0 and T+1. But the transition to T+1 will reinforce the need for interconnectivity between cleared and uncleared financing environments, enabling efficient mobilization and transfer of collateral within and between segments. CCP-cleared trades may rely on collateral and settlement liquidity from upstream trades conducted on a non-cleared basis, for example, and this trade flow – as well as related “gating events” such as stock loan recall, allocation, and confirmation deadlines – must be managed efficiently to minimize risk of settlement failures or disruption to the netting efficiency offered by Eurex .

“For our clients, transacting in Europe is already seamless and this will be enhanced in 2026 with the planned release of the Correspondent Central Banking (CCBM) model for cross-NCB triparty posting of collateral,” says Szigeti. Clearstream is the only Eurozone CSD providing triparty collateral management services and enabling the collateralization of all ECB-eligible securities under the ECMS.

Drawing on this network, and the dominant position of Eurex in cleared repo in Europe, Clearstream and Eurex are developing commercial bank money and central bank money netting for cleared repo flows with reuse into central bank pledge and to meet Uncleared Margin Requirement (UMR) obligations via Clearstream triparty.  “We are a long way down the road of providing a seamless, pan-European financing environment for our clients,” says Szigeti.

ETF lending and borrowing  

For exchange-traded funds (ETFs) and collective investments, migration to T+1 will also increase pressure on post-trade efficiency. For ETFs, this transition will accentuate the significance of timing mismatches between primary and secondary market trading. When the investor subscribes to an ETF or places a redemption, the cash leg typically settles on T+2.

However, settlement for the underlying securities will take place on T+1 – with authorized participants delivering securities to the ETF issuer to create new securities or receiving underlying securities from the ETF issuer when ETFs are redeemed.

Clearstream introduced ETF lending across all of its securities lending pools during 2024 and expects this to be a key asset class from a strategy perspective in helping the market to transition to T+1 settlement.

Clearing choice

In December 2023, the US approved mandatory clearing of eligible secondary market transactions in US treasuries, with this provision coming into effect for cash-market trades from 31 December 2026 and for eligible repo market transactions from 30 June 2027. However, Deutsche Börse Group continues to support a non-mandatory approach to European clearing, offering choice to the market and enabling firms to exercise their own preferences regarding whether they opt for cleared or non-cleared, both of which are available through Deutsche Börse Group.

This said, some buy-side firms, including money-market funds and UCITS, are currently not permitted to pledge securities to a CCP in Europe and this has constrained their ability to utilize central clearing for repo. “While interbank repo is largely cleared, work needs to continue to remove barriers for non-bank financial institutions (NBFIs) and to provide incentives for public sector bodies, such as central banks, to participate in cleared financing markets,” says Gast.

For Gast, regulatory alignment, especially regarding haircuts and Net Stable Funding Ratio (NSFR) treatment, is important to minimize systemic risk and to promote broader adoption. “Allowing UCITS to pledge securities and to raise cash via cleared repo to meet margin calls would be valuable steps to remove entry barriers for NBFIs,” says Gast.

Digital repo solutions

Digital innovations, such as those around crypto-assets, stablecoins, and investment in distributed ledger technology (DLT), will be important in shaping future strategy for funding and financing divisions at Deutsche Börse Group. As central banks continue to remove liquidity from the market, firms will need to review their liquidity management strategies and to be clear about how they will source liquidity through traditional finance and digital channels in an increasingly fragmented world.

Eurex has continued to make important advances in developing digital repo solutions through its collaboration with HQLA^X, enabling delivery-versus-payment (DvP) trading of digital securities cash baskets against digital cash. “Successful tests of intraday DvP GBP repo with HQLA^X and Fnality, and participation in the ECB’s DLT settlement trials, demonstrate the potential for centrally cleared intraday repo transactions using DLT,” concludes Gast.

The article was first published on PostTrade 360° on 14 January 2026.