The conversation on the new securities lending CCP model is changing – its not so much in the future tense anymore but is moving to the present. Our panel at IMN’s Beneficial Owner’s Conference in London yesterday cemented that fact. But how soon is too soon to actually expect securities lending CCPs, that allow beneficial owners to participate directly, to be regular fixtures in the market?
We note seven events on securities finance coming up in Europe, starting with IMN’s Beneficial Owner event and ending with Collateral World, including two events of our own. This article offers a summary of where we will be, where we won’t be, and what attendees can expect. Then we wrap up the month by heading to SIBOS in Boston.
SunGard has released a new white paper, “The potential benefits of regulatory and market change for securities lending.” From the introduction:
As securities lending CCPs gain momentum, a critical feature, perhaps the most important feature at this point, is their ability to accept beneficial owners as direct participants without having to post margin or contribute to the default fund. To paraphrase Bill Clinton’s 1992 campaign slogan, “its the beneficial owners, stupid.”
Securities lending CCPs are at the intersection of major changes to liquidity and leverage in financial markets. Aside from requirements for increasing bank capitalization, Basel III is introducing new liquidity metrics such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). These shake-ups have already begun to change relationships between borrowers and lenders in securities lending.
Some new and compelling news stories over the last week spark up talk about shifting collateral needs, and more importantly, fundamental changes to bond market liquidity that we could impact securities finance in a profound way. Here is our take:
Finadium has released its seventh annual survey of fund managers and insurance companies in securities lending. This year’s survey tackles some challenging topics including the value of agent lender indemnification in a CCP environment.
Beneficial owners are in a tough spot with securities lending CCPs. For years they have thought that CCPs were unattractive – loss of counterparty control, uncertain operations and too much margin were deal killers. Agent lenders were generally supportive of this view. But the market has fundamentally changed due to regulations, and that means that old ways of thinking are no longer sound for a successful lending organization. We look at five interrelated areas where beneficial owners should review their approach to CCPs: distribution, beneficial owner costs, agent lender costs, borrower costs and transactional pricing.
The latest Finadium survey of asset managers shows some new data points on the collateral transformation trade. We are paying close attention to this important topic. This article is part of the Finadium research subscription.