Cboe Clear Europe, Cboe’s Amsterdam-based pan-European clearing house, has secured the support of additional participants to support the launch of its Central Counterparty (CCP) clearing service for securities financing transactions (SFTs).
Bank of America and State Street have committed to supporting the service from launch, which is expected during Q3 2024, subject to regulatory approvals.
Their commitment brings the total number of launch participants for the SFT clearing service to nine, comprising a broad range of key market participants, including banks, clearing firms, asset managers and custodians. This includes:
- Borrower Participants: ABN AMRO Clearing Bank, Bank of America, Barclays, Citibank, Goldman Sachs and J.P. Morgan
- Agent Lender Participants: BNY Mellon, Citibank and State Street
Vikesh Patel, President, Cboe Clear Europe, said:
“We are delighted to have added two major participants in the European securities lending industry to the group of firms supporting the launch of the SFT service and benefit from their collective expertise as we finalise our offering. Their recent commitment – and the calibre of the group of early adopters we have assembled as a whole – clearly demonstrates the growing need to introduce central clearing to the European SFT market and help reduce risk in this key activity.
Cboe Clear Europe is uniquely positioned to provide this service and we couldn’t be more excited to bring our proven post-trade expertise to a new asset class with the support of our partners, delivering significant capital, operational and risk-mitigation efficiencies.”
Alessandro Cozzani, Managing Director, Bank of America, said:
“We are excited to embark on this journey with Cboe Clear Europe. Developing a cleared product for securities lending is a natural evolution in our secured financing market, which should allow for greater risk optimisation with counterparties.”
As previously announced, this new service is expected to introduce matching, CCP clearing, settlement and post-trade lifecycle management for SFT transactions in European cash equities and ETFs. Subject to regulatory approval, the service will be available to principal lenders, special participant lenders (UCITS and non-UCITS) and borrowers, with settlement taking place in 19 European Central Securities Depositories (CSDs) with non-cash RQV managed at 2 Tri-Party Collateral Agents and cash RQV via cash correspondent banks.
Because European SFTs primarily occur on a bilateral basis and are not cleared, the products face significantly increased capital demands and credit risk limitations as a result of new regulations including the implementation of the Basel III endgame and Basel IV frameworks through the Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD). The impact of such regulations may lead to a reduced capacity and appetite to borrow or lend.
By offering access to a CCP clearing and settlement service for SFTs, Cboe Clear Europe is expected to help clients address these new rules, reduce their risk-weighted assets exposures associated with bilateral SFTs and help support the growth of this vital market. The service is expected to also bring significant operational advantages including greater settlement efficiency leading to a reduction in fail fines, elimination of agent lender disclosures, and improved practices around fees management, corporate actions, and post-trade lifecycle processing.
Jan Treuren, SFT Product Lead, Cboe Clear Europe, said:
“The addition of Bank of America and State Street demonstrates the growing momentum behind our service as we approach its launch and our commitment to delivering innovative client-driven services. We are working closely with all of our launch participants to help shape the first phase of our SFT service offering through a series of regular working groups and key stakeholder meetings. This includes exploring expansion of the service into other assets classes and jurisdictions. At launch, Cboe Clear Europe will be the only pan-European CCP offering these consolidated services for SFTs in European cash equities and ETFs.”
