The majority of market participants at Deutsche
Borse’s Funding and Financing Summit are looking
at alternative securities lending structures.
Over 60% of the audience at the Luxembourg event this week
claimed to be exploring new models as part of their financing
efforts in the current low yielding environment accompanied by
strict regulatory requirements.
Centrally cleared stock loan trades (40% of the audience),
principal lending, peer-to-peer trades and pledge structures
(17%) are among the new routes being looked at as extensions or
complete replacements of the traditional agent lender
Andy Dyson, chairman of securities lending trade body ISLA,
said the responses were encouraging and showed that
institutional lenders and borrowers of securities are aware of
a "changing environment."
"The securities lending market is reflective and reactive to
change, not isolated in its own bubble," he added. "Regulatory
and capital frameworks are catching up with market participants
and model are changing."
James Day, who runs BNY Mellon’s securities
finance business across EMEA, said it’s "not
surprising" to see firms exploring new options.
"Certain clients are keen on the CCP route. Peer-to-peer
lending interest is growing as banks pull away from the repo
market. Meanwhile, pledge structures are appealing to the
borrowing community," he added.
Under a pledge, collateral and margin stay within the
borrower’s ownership. This results in a much lower
risk weighting, cutting the cost of executing securities
lending transactions for borrowers.
Meanwhile CCP’s, such as Eurex Clearing (part
of Deutsche Borse), are growing in popularity due to their
ability to simplify multiple counterparty credit structures to
a single entity, reducing regulatory capital requirements and
"CCPs and pledge structures are different ways of trying to
attack the same problems," said Morgan Stanley’s
Susan O’Flynn, adding that 40% of the audience
considering CCPs is a higher figure than the 20% it would have
been two years ago.
"For example, each offer a solution to mitigate the impact
of single counterparty credit limits which place buffers on
excessive credit exposures of large banking organisations to a
"There are challenges though, particularly when joining as
CCP. It can be a lengthy onboarding process," O'Flynn added.
"Connectivity is not insignificant. The direction of travel
hasn’t gone as quickly as we would have
After years of development, the concept of central clearing
across securities finance is towards end of development phase,
but it remains the "new kid on block", according to
"Some would argue that the securities finance industry has
been slow to adapt to CCPs, or vice versa," he said at the
Roelof Van der Struik, who handles securities lending at
Dutch investment manager PGGM, was cautious and said his firm
is used to dealing with counterparties it knows
"A CCP is a very different proposition for a broker,
compared to an asset manager. I have to consider
PGGM’s liquidity and fund stability, which becomes
a very serious issue if more of the business runs through a