DTCC’s equity finance CCP, expected to launch in early 2021, has the potential to change long-held patterns in the securities lending industry, both in the US and abroad. Buy-side firm participation through either a sponsored or agency model should lower balance sheet costs enough to generate profitable General Collateral (GC) business, which in turn could result in new trading patterns in broader financial markets.
While the headlines should be positive for securities lending as a whole, a new business model structure means new opportunities and competition. Three of the most impactful areas are: a buy-side view of securities lending as a desk-level traded product using the services of a sponsor; challenges to agent lenders from any NSCC clearing member that may see sponsored equity finance as an entry point to buy-side relationships; and an expansion of the GC model to specials, because if balance sheet costs are lower for GC, then why not for specials too?
These factors should be driving strategic considerations of the equity finance CCP model by securities finance desks and technology providers. As banks and asset managers continue to go through a major phase of technology adoption and operational restructuring, a new CCP introduction looks likely to both drive and benefit from these changes.
This report should be read by any securities finance desk lending or borrowing US equities or corporate bonds.
Table of Contents
- Executive Summary
- An Overview of the Model
- – The Margin Question
- Beneficial Owner Viewpoints
- – A Win for Self-Lenders
- – Will Lenders See Price Improvement?
- Opportunities and Competition for Banks and Vendors
- What is the CCP Worth to the Market?
- – Looking to the Long Term
- About the Author
- About Finadium LLC