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Beneficial owners fear onerous regulation
29 May 2014
CCPs could become a tough reality for securities lending participants. Stephanie Baxter reports from the Euroclear conference
Bbeneficial owners revealed their fears that regulation
could have unintended consequences for securities finance. One
concern was that future capital rules would increasingly drive
the business onto central counterparties (CCPs), which will
receive a low risk weighting under Basel III.
Richard Hochreutiner, head of global collateral, Swiss Re,
said that while he was not an advocate of CCPs in securities
lending, beneficial owners might have no choice in the
"Personally, I’m not a fan of CCPs. I
don’t see the benefits for beneficial owners. CCPs
are great for people to get the benefit of netting and balance
sheet relief from two-way business but I
don’t see that for beneficial owners as
we’re always on the same side of the market.
"Maybe CCPs will become a hard fact of life for beneficial
owners if no one [agent lenders] has balance sheet to do
business. Otherwise, if they are just an alternative route,
beneficial owners would probably like to shy away from
In a poll, the largest group of delegates, 45%, said that
CCPs would not become the main route while 35% said it would
become the dominant route if the model was adapted to the
reality of the business.
Roelof van der Struik, investment manager at PGGM, said: "I
don’t think the [securities lending] market is
efficient enough at the moment [but] if a more efficient route
to market is a central clearinghouse then we could see more
flows through CCPs. The market should try to evolve quickly. If
it does not there will be a systemic jolt somewhere and someone
will step in to make it more efficient."
He added that if PGGM were forced to use CCPs it could mean the
end of its securities lending programme.
The panel discussed how regulation could impact the ability
of institutional investors to be involved in markets such as
Hochreutiner said: "This [repo] market is extremely important
for mindful non-banking financial institutions such as us
[Swiss Re] and some of the regulations could be going in a
direction that are not good for us. I remain very
"Some of the proposed new regulations may have the undesired
side-effect to limit market access of non-bank financial
institutions, such as insurers, which on the one hand use the
repo market to invest cash on a secured basis and on the other
hand can use repo as efficient cash management tool to raise
short-term cash thereby reducing the need to fire sell
He called for beneficial owners and the industry to join
forces to make sure regulators understood the potentially
negative impact on ordinary people.
"It’s important we work together and make clear
that it’s not just a bunch of fat bankers moaning.
The side-effects of some regulatory proposals will result in
higher costs or lower yields for pensioners and life insurance
policy holders and more importantly in some instances in higher
The panellists spoke at the annual Euroclear Collateral
Conference in Brussels on May 12.
Click on the hyperlinked titles below to read more coverage
from the Euroclear conference:
Appeal of collateral downgrades to fall
Feeling the pressure in repo
Poll: regulation casts gloom on securities lending