## Emerging Market Securities Access to Global Plumbing

_IMF Working Papers, March 26, 2021_

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## Bibliographic details
- Authors: Gongpil Choi, Federico Ortega, Manmohan Singh
- Published: March 26, 2021
- Series: IMF Working Papers

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### Overview
- Research question: What are the constraints that have stalled EMs efforts to reuse their securities in international financial centers?
- Scope: Economics of collateral re-use and the present institutional structure in Asian and Latin American countries.
- Key institutional reference: Eurozone collateral pool and its role in incentivizing asset acceptance in global plumbing.

### Key findings
- Pledgeability:
  - Empirical investigation suggests pledgeability enhances financial stability and reduces dollar funding risk.
- Asset acceptability:
  - Many securities (e.g., BTPs, Italy) are acceptable in London but not EM securities.
- Market structure and incentives:
  - The Eurozone collateral pool is explained as a mechanism that incentivizes EMs (and other issuers) by expanding acceptable collateral sets.

### Institutional constraints and mechanics
- Legal and institutional barriers in Asian and Latin American countries limit the reuse of securities in international financial centers.
- Differences in acceptance criteria across international financial centers create fragmentation (example: BTPs accepted in London; many EM securities are not).
- Operational plumbing aspects:
  - Liaison with International Central Securities Depositories (ICSDs) is a crucial institutional relationship for access.
  - Global banks’ balance sheet capacity to intermediate cross-border collateral is a critical market capacity constraint.

### Policy implications and recommendations
- Improve pledgeability frameworks in EM jurisdictions to enhance financial stability and reduce dollar funding risk.
- Engage with ICSDs to address operational and custody-related barriers to cross-border collateral mobility.
- Strengthen coordination with global banks and consider measures to expand banks’ capacity to intermediate cross-border collateral flows.

### Looking forward / Market development scenarios
- Successful development depends on:
  - EMs’ liaison with ICSDs to align operational and legal arrangements.
  - Global banks’ willingness and balance sheet capacity to intermediate cross-border collateral.
- Without improvements in pledgeability, ICSD access, and intermediary capacity, reuse of EM securities in global plumbing is likely to remain constrained.

*Emerging Market Securities Access to Global Plumbing — Gongpil Choi, Federico Ortega, Manmohan Singh (March 26, 2021)*

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- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2021/03/26/emerging-market-securities-access-to-global-plumbing-50268_