CCP Models for Client Clearing in Securities Finance
Finadium
November 2023
Central counterparties (CCPs) in securities finance client clearing are arguing their case for adoption. CCPs make common sense for securities finance, especially in light of upcoming Basel III Endgame rules that are expected to put additional balance sheet pressure on regulated banks. But that has not yet been enough to persuade borrowers and lenders to replicate the success of repo CCPs for client clearing.
This report offers an analysis of four models for client clearing of securities finance transactions: Eurex’s now-closed Lending CCP, DTCC’s NSCC SFT CCP, Cboe Clear Europe and a new rule change from the Options Clearing Corporation. The report looks at commonalities and differences between the models and asks how CCPs can best encourage market adoption. The report concludes with ideas for calculators that can help traders make clearing decisions in real time on the basis that the math works in some cases, some of the time.
No one, including the CCPs themselves, expect that CCPs will become the dominant form of clearing for securities finance. At the same time, market participants across products say that CCPs play an important role in their client services and balance sheet management practices. If the right combination of margin and counterparty exposure methodology can align, these market infrastructures will succeed, likely to the overall benefit of the securities finance industry.
This report should be read by any borrower, lender or intermediary in securities finance. CCPs themselves may find it helpful to assess their positioning.
Table of Contents
- Executive Summary
- The Road for CCPs in Client Securities Finance Clearing
- Client Clearing Models
- – Example 1: Eurex’s Lending CCP
- – Example 2: NSCC SFT CCP
- – Example 3: Cboe Clear Europe
- – Example 4: Options Clearing Corporation
- Potential Next Steps for CCP Success
- – The Calculator Approach
- About Finadium LLC