Cboe Clear Europe, Cboe’s pan-European clearing house based in Amsterdam, has secured the support of additional participants to support the launch of its Central Counterparty (CCP) clearing service for securities finance trades (SFT).
Bank of America and State Street have committed to support the service from launch, which is expected in the third quarter of 2024, subject to regulatory approvals.
Their commitment brings the total number of participants in the launch of the SFT clearing service to nine, involving a wide range of key market participants, including banks, clearing firms, asset managers and custodians. This includes:
- Participating borrowers: ABN AMRO Clearing Bank, Bank of America, Barclays, Citibank, Goldman Sachs and JP Morgan
- Agent Lender Participants: BNY Mellon, Citibank and State Street
Vikesh Patel, President of Cboe Clear Europe, said:
“We are delighted to add two major players in the European securities lending industry to the group of companies supporting the launch of the SFT service and benefit from their collective expertise as we complete our offering. Their recent engagement – and the caliber of early adopter group we have assembled together – clearly demonstrates the growing need to introduce central clearing to the European SFT market and help de-risk this core business.
Cboe Clear Europe is uniquely placed to provide this service and we could not be more excited to bring our proven post-trade expertise to a new asset class with the support of our partners, providing significant capital, operational and efficient risk reduction’.
Alessandro Cozzani, CEO of Bank of America, said:
“We are excited to begin this journey with Cboe Clear Europe. The development of a cleared securities lending product is a natural evolution in our secure finance market, which will enable greater risk optimization with counterparties.”
As previously announced, this new service is expected to introduce matching, CCP clearing, settlement and post-trade lifecycle management for SFT trades in European cash stocks and ETFs. Subject to regulatory approval, the service will be available to primary lenders, specialist participating lenders (UCITS and non-UCITS) and borrowers, with settlement taking place in 19 European Central Securities Depositories (CSDs) with non-cash RQV managed in 2 Tri- Party Intermediaries and Cash RQV through Cash Correspondent Banks.
Because European SFTs occur primarily on a bilateral basis and are not cleared, the products face significantly increased capital requirements and credit risk constraints 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 result in a reduced ability and appetite to borrow or borrow.
By offering access to a CCP clearing and settlement service for SFTs, Cboe Clear Europe is expected to help clients cope with these new rules, reduce their weighted assets related to bilateral SFTs and help support the growth of this vital market importance. The service is also expected to bring significant operational benefits, such as greater settlement efficiency leading to reduced failure penalties, elimination of lender disclosures and improved practices around fee management, corporate actions and post-trade lifecycle processing.
Jan Treuren, Head of SFT Products, Cboe Clear Europe, said:
“The addition of Bank of America and State Street demonstrates the growing momentum behind our service as we approach launch and our commitment to providing innovative, customer-driven services. We are working closely with all launch participants to help shape the first phase of the SFT service offering through a series of regular working groups and key stakeholder meetings. This includes exploring expanding the service to other asset classes and jurisdictions. At launch, Cboe Clear Europe will be the only pan-European CCP to offer these unified services for SFTs on European cash stocks and ETFs.