NYSE Euronext has extended the scope of its Cleared Borrowing & Lending Market (CBLM), which allows exchange members to borrow and lend the most liquid stocks listed on Euronext Paris, Euronext Amsterdam and Euronext Brussels with a guaranteed central counterparty for all transactions (LCH Clearnet SA) and full trading anonymity.
In addition to the component securities of the CAC40 and other French instruments, those of the BEL 20 and AEX-Index will be accessible via the CBLM as of 18 March 2013. This extension will be supported from 1 April by a fee promotion on CBLM, depending on the monthly value traded on the central order book by each member.
The central securities depository (CSD) of reference for the settlement of trades is the CSD of the underlying securities. Any member interested in trading or continuing to trade on the CBLM must therefore ensure that it has the appropriate post-trade agreements in place for the Euronext Amsterdam and Euronext Brussels, as well as Euronext Paris.
A more prominent role for central clearing of securities lending transactions has increasingly been mooted in the industry in line with perceived regulatory trends across the securities markets.
“Market perception has started to change,” says Tomas Kindler, head of clearing relations, SIX Securities Services. “The market is slowly accommodating to the idea of CCPs for securities lending.” The change in attitude from outright dismissal to cautious consideration appears to be driven mainly by regulation. “There are no specific regulatory mandates in this area yet,” says Kindler, “but securities lending is in the same category as OTC derivatives and repo in terms of capital requirements.”
From a regulatory perspective, a CCP would have the same impact on capital requirements for securities lending transactions as it does on OTC derivatives.
In June, SIX Securities Services will be launching its own clearing facility for securities lending transactions with one venue, leveraging the functionality it provided to SecFinex until the latter’s closure by NYSE Euronext at the end of 2011. According to Kindler, a number of other venues are also expressing an interest in the renewed service.
In a report last year, ‘Top trends in securities lending’, research and consulting firm Celent posed the question of whether securities lending can follow in the same footsteps as OTC derivatives “and use a CCP model to increase liquidity and address counterparty risk factors.”
Celent said that a CCP venue was a viable option for securities lending, but that an over-the-counter market would continue to exist. “In the event a CCP model is mandated and the market moves to full implementation, custodians will still play a major role in the securities lending space,” the report suggested. “It would be highly unlikely for beneficial owners to go directly into the marketplace. Not to mention that an exchange model would require significant operational and technological investments for all parties involved; borrower, lender, intermediaries, and CCP.”
Reporting by Richard Schwartz