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Finadium survey: asset managers dislike CCPs
11 July 2012
Finadium’s new research on managers’ perspectives finds interest in the concept of securities lending central counterparties in decline
As asset managers have become more familiar with the concept of securities lending central counterparties (CCPs), their interest appears to have declined, according to a Finadium survey.
Last year Finadium found that 9% of respondents preferred a CCP over a bilateral arrangement, while this year there were none. Last year 57% of managers clearly preferred bilateral arrangements while this year the figure rose to 70%.
Finadium said: “These are important numbers. If CCPs were to become mandated, that could affect the willingness of a large number of asset managers to engage in a largely optional securities lending program.”
However, Finadium added that securities lending agents have a strong influence on their asset manager clients and several executives noted that their agents had spoken neutrally or negatively about CCPs and that had influenced them towards bilateral arrangements.
“Executives believe that if CCPs were more efficient than bilateral lending then agents would take advantage of the new mechanisms. The fact that they haven’t says something about the utility of the CCP model. When agents change their opinions some asset managers will change theirs as well.”
The fate of CCPs in securities lending appears tied to broader regulatory factors including Basel III. Basel III strongly prejudices CCPs over bilateral transactions in the risk capital weightings that banks must assign to each trade. If a CCP can be weighted at 2% as compared to a bilateral transaction at 15% or 100%, then the CCP is the logical choice for efficient cash management. While securities finance transactions are exempted from certain aspects of Basel III, it is not yet known if in the end they will fall under this risk-weighted capital methodology as well.
The report was based on telephone and in-person interviews with 38 asset management professionals in North America and Europe with $14.7 trillion in assets.