French custodian bank BNP Paribas Securities Services has become a general clearing member of SecFinex, the securities lending platform owned by exchange operator NYSE Euronext.
Through SecFinex, BNP Paribas' clients will be able to enter into securities lending arrangements using a central counterparty service for stocks in the Nordic countries, Austria, Belgium, France, Germany, The Netherlands, Portugal and Switzerland. Clearing is provided by central counterparties LCH.Clearnet and SIX x-clear. Coverage of the UK market is planned for Q3 2010.
The frailty of bilateral arrangements was exposed after Lehman's collapse, which left some lenders unable to retrieve stock.
“Post-Lehman the lending market has been constrained due to credit rating issues and concerns over counterparty risk,” said Lee Hodgkinson, non-executive director at SecFinex. “To compound this environment the new Basel regulations will further increase the cost of capital for non cleared transactions and that will have an impact on margin collateral for lending arrangements. The centrally cleared Secfinex CCP model is a highly cost efficient and safe value proposition. ”
The SecFinex system allows borrowers and lenders to register their interest via a portal and when it is matched the arrangement is centrally cleared. That reduces capital allocation for counterparty credit risk, real-time risk management and margining and straight through processing. Firms can also use the CCP mechanism to add security to a bilateral lending arrangement.