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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
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...
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