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Securities lending will move to CCPs

25 July 2014

But widespread sceptisim about the associated costs and benefits remain, Ceri Jones investigates

Read more: CCPs Basel III securities lending

The long-running debate over whether securities lending should be conducted via central clearing counterparties (CCPs) has largely been won. The weight of regulatory developments – most notably the favourable treatment of CCPs under Basel – means that they appear to have a bright future.

A bank’s collateral and mark-to-market exposures to CCPs are subject to a low risk weighting, at just 2%. This, together with strengthened capital requirements for traditional bilateral OTC derivative exposures, is a strong incentive for banks to use CCPs – such as Clearnet, Eurex, Cassa di Compensazione e Garanzia and recently Keler – but the cost implications are difficult to compute.

"Beneficial owners, agent lenders and borrowers will all have their own unique experiences in cost savings using CCPs," says Josh Galper, managing principal at Finadium LLC.

"But the cost savings on the borrower side will be significant." Borrowers, for instance, can enjoy lower capital charges because they will...