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Deutsche Börse Group GFF Securities Lending CCP Luncheon - Paris, 22nd March 2017

Release date: 21 Mar 2017 | Eurex Clearing

Deutsche Börse Group GFF Securities Lending CCP Luncheon - Paris, 22nd March 2017

Deutsche Börse Group Global Funding & Financing (GFF) hosted a Securities Lending CCP luncheon in Paris on Wednesday 22nd March. The event was an opportunity for GFF to gather the key Paris-based market participants for an open and interactive forum to discuss the status and progress of the Lending CCP.

The attendees included 15 senior representatives from both buy-side and sell-side participants that are currently involved in funding and financing activities. This included heads of trading for collateral, securities lending, repo as well as treasury from asset managers, global custodians, investment banks and prime brokerage businesses. Representatives from Amundi, BNP Paribas, CM CIC, Crédit Agricole and Natixis Asset Management joined current and active Lending CCP participants Morgan Stanley, Natixis and Société Générale.

Marcel Naas, Global Head of GFF, welcomed the attendees and gave an overview of the GFF structure as well as the background to the development of the Lending CCP. Naas highlighted the approach undertaken by Deutsche Börse Group; initiating an in-depth market consultation to establish the service and through this commitment and investment, this service offering would not have been possible. The Lending CCP has been extensively guided by leading market participants over the course of the last eighteen months, to adapt the model to be more conducive to the practices followed by the industry. Deutsche Börse Group has delivered a first class offering through the hard efforts and guidance of the industry; this now requires the client commitment and investment from market participants.

Jonathan Lombardo, SVP GFF Sales, described the current service offering available to participants of the Lending CCP service and gave an overview of current volumes providing analysis across equity and fixed income trading activities as well as the current range of Tri-party Collateral Agents in place for non-cash collateral usage. Lombardo continued with a description of the product development roadmap that includes further equity markets as well as the plans for an improved legal and operational framework for exposure and collateral management. The client pipeline was identified as strong amongst the liquidity providers; this includes BNY Mellon, BlackRock and PGGM. Investment banks including Bank of America Merrill Lynch, Barclays and Deutsche Bank are planning to start to implement the Lending CCP service in 2017.

The main discussion points of the luncheon focused on the current exponents of the service explaining to their peers on the drivers and decision processes that validate the usage of a CCP for securities lending. Representatives from the investment banks explained how the necessary level of engagement over a prolonged period to internal and external stakeholders was required in order to materialise the benefits from using the Lending CCP. Such benefits were described as more efficient use of bank resources such as balance sheet and capital for their trading, IT and operational units. Other drivers for CCP take-up include credit limit utilisation and credit intermediation as well as the potential to broaden the range of trading counterparts. Banks continued to stress the importance for the CCP to attract liquidity and the need for a large supply of lendable assets available from the buy side in order to achieve full scalability.

With the benefits weighing heavily towards the investment banking participants, the buy-side participants were keen to explain that a number of key issues are critical for their involvement – revenue and demand.  The asset managers need to see a greater demand for CCP usage; but also need the reward and incentive for doing so. Even though capital and operational benefits are expected, the major determining factor is the opportunity cost and how much more revenue can be generated for clients by choosing the Lending CCP over the existing bilateral trading relationships. A number of other contributing factors to obtaining scale and accessibility of the Lending CCP are critical. In order to sustain current trading arrangements, the complexity of Asset Managers’ funds structures need to be simplified for CCP utilisation, borrowers require access to several hundred of funds via the CCP as this takes away the on boarding and legal work on their side and would therefore allow the banks to transact high volumes through the CCP.

Borrowers indicated that more beneficial pricing is available by using the CCP currently; however to maintain cost-effective pricing, the CCP needs to introduce further enhanced solutions in order for the banks to be able to take advantage of netting capabilities, increased margin utilisation across cleared products plus a greater capability to allow for efficient re-use of collateral. The requirement to implement netting across securities lending and repo transactions would result in more effective management of regulatory capital requirements while the introduction of cross-margining capabilities on multiple product ranges and asset classes would make a significant positive impact on the pricing, efficiency and attractiveness of the Lending CCP.

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