Cboe Clear Europe has commenced clearing of European Securities Financing Transactions (SFTs), with Natixis Corporate & Investment Banking as a principal lender against J.P. Morgan as a borrower among the first trades cleared through the new service.
The SFT clearing service service transforms the bilateral process for SFTs in European equities and ETFs into a centrally cleared model, helping to increase the capital efficiencies associated with activities such as securities lending and supporting the growth of this key market. In addition to the firms that have already used the service, a number of others – including banks, asset managers, broker-dealers, and agent lenders – have completed final testing in preparation for clearing.
The service utilizes BNY and J.P. Morgan as tri-party collateral agents, while Pirum serves as the transmitter of new trade instructions and post-trade lifecycle events on behalf of clients.
Vikesh Patel, president of Cboe Clear Europe, said in a statement: “This launch responds to strong client demand for a clearing solution to help improve the capital efficiencies associated with stock borrowing and lending activities – delivering significant benefits to all participants in this ecosystem, including asset owners which lend out inventory as a way of generating additional income for their members. It demonstrates our commitment to both investing in and delivering innovative clearing solutions in collaboration with our clients to meet the growing focus of financial institutions on becoming more capital efficient. We look forward to building out this new ecosystem and exploring opportunities to expand the service into other asset classes and regions.”
Gesa Johannsen, executive platform owner for Global Collateral at BNY, said in a statement: “Cboe Clear Europe’s offering for European SFTs is an important step as the global collateral industry seeks to leverage central clearing solutions that deliver capital efficiency and enhance the safety and resiliency of funding markets. We’re excited to provide clients with the option to clear securities lending transactions through Cboe’s new service while leveraging BNY’s global collateral platform to manage their liquidity and to access cleared and uncleared collateral markets globally.”
Grégoire Froehlich, GSF trader at Natixis Corporate & Investment Banking, said in a statement: “Clearing SFTs at Cboe Clear Europe enhances our capital efficiencies and reduces operational complexities associated with these products. We’re delighted to be among the first participants to clear this product at Cboe Clear Europe.”
Robert Frost, chief product officer at Pirum, said in a statement: “This collaboration is a fantastic example of innovative firms working together to help increase the efficiency of the securities finance industry, and we look forward to continuing to roll out the service in 2025 with the team at Cboe Clear.”
Jan Treuren, SFT product lead for Cboe Clear Europe, said in a statement: “Clearing the first trades is an important milestone for our SFT services, and demonstrates our ability to efficiently leverage our infrastructure and technology capabilities to address customer needs. We expect activity to increase in the weeks and months ahead, with active onboarding and testing already underway with principal lenders, agent lenders acting on behalf of special participant lenders (including UCITS and non-UCITS beneficial owners), and the borrower community.”
Cboe Clear Europe is offering central clearing, settlement and post-trade lifecycle management of European SFTs in cash equities and ETFs. This service is available to principal lenders, special participant lenders (UCITS and non- UCITS) and borrowers, with settlements conducted across 19 European Central Securities Depositories (CSDs).
The introduction of central clearing is designed to make the trading of SFTs more capital efficient, particularly with regards to risk-weighted assets. This efficiency is expected to be particularly important given the increased regulatory, capital and operational burdens associated with SFTs resulting from the Central Securities Depositories Regulation (CSDR), Securities Financing Transactions Regulation (SFTR), and planned Basel IV implementation.
The service also provides margin and operational advantages within the largest cash equities clearing house in Europe, including savings from cross-margining between cash equities and SFTs, greater settlement efficiencies, elimination of agent lender disclosures, and improved practices around fees management and corporate actions.