The benefits of feeding securities lending trades through
CCPs are becoming better understood by pension funds, asset
managers and their agent banks, industry experts claim.
Despite being widely used and mandatory in some cases across
the derivatives market, CCPs, which sit between a buyer and a
seller of a security, have been slow to take off in the stock
OCC in the US and Eurex Clearing in Europe have invested
heavily in developing models, but much of the activity so far
has been in the broker-to-broker market. Advocates are
increasingly trying to attract a wider range of users,
particularly beneficial owners and agent lenders.
Speaking at the IMN Securities Finance Conference in Florida
this week, Mark Skowron, head of US Trading, Northern Trust,
said there are "tangible benefits" on offer to beneficial
"Overall, CCP’s are a net positive for this
industry," he told event attendees. "Better distribution of
securities lending inventory and price discovery are two
specific areas where CCPs can help beneficial owners."
Arianne Collette, director of bank resource management at
Morgan Stanley said that "capacity and stability" are also
enhanced by centrally cleared securities lending.
"It’s also important to remember that
CCP’s aren’t a black box –
beneficial owners still maintain visibility with their
counterparties," she added.
OCC’s stock loan CCP service has been in place
for two decades but volumes have been rising rapidly of late.
This week it reported a 32% increase in new loans in January,
up from the same month in 2016.
Chip Dempsey, OCC’s chief commercial officer,
said the Chicago-based business is focused on expanding its
list of agent lender and beneficial owner members.
"We hope to have a revised model in place by the end of this
year, subject to regulatory approvals, which offers clear
benefits to the lending community," he added.
Speaking to Global Investor at the end of 2016, JP
Morgan’s Bill Smith said risk
mapping is the real issue.
"The CCP model is a radical shift from bilateral
transactions. An analogy may be the repo business, which years
ago moved from bilateral to tri-party.
"However, the shift to CCPs is more complex. We have risk
metrics that can help us assess the risk in CCPs – but
the clients’ perspectives on risk, and
opportunities for risk mitigation, will be big questions."
OCC's Demsey said this week that the focus is on a CCP model
which maintains the operational aspect of bilateral trades
while at the same time taking on clearing and risk management
In terms of pricing, most industry experts expect a
two-tiered structure to emerge as CCPs become
"It will be interesting to see whether
two-tier pricing develops once CCP adoption is widespread given
the capital cost advantage of trading through a CCP,"
DataLend’s Nancy Allen told Global Investor/ISF
DataLend's parent company EquiLend has already made inroads
into the central clearing market for stock loan trades.
The company acquired AQS last year, a platform which
facilitates clearing and settlement via OCC.