SecFinex cleared for take-off
19 August 2011 London
Image: Shutterstock
CCPs are being "blown along by regulatory winds and pragmatism", said Data Explorers, presenting the case of SecFinex, the first live centrally-cleared multi-lateral trading facility (MTF) for securities lending in Asia, Europe and the US.
The entry of clearing services for the securities lending market comes at a time when beneficial owners have narrowed distribution pools in the wake of the Lehman collapse. But lenders should consider that both strategies can be adopted, said Jonathan Lombardo, head of sales at SecFinex, speaking to Data Explorers.
“Does a beneficial owner want to lose out on that potential revenue because the agent lender community might be a little reluctant to engage?” said Lombardo.
He points out that the latest ICMA figures show that 28 per cent of a $6 trillion fixed income lending industry trades via CCP – all broker-to-broker dealing.
And, in cooperation with trading partners LCH.Clearnet and Six x-clear, SecFinex can provide full post-trade functionality while also providing cost savings on other transactions such as monthly reconciliations.
Admittedly, Lombardo said it is early days yet - a reality punctuated by relatively low volumes. SecFinex currently has an estimated $300 – 400 million on loan and $1.2 billion of liquidity on a daily basis. But, Lombardo said, the CCP is looking to treble or quadruple that over the next year as regulation drives trades onto exchanges.
Apart from increased capital requirements from Basel III, other regulations intended to prevent systemic risk such as EMIR, MIFiD and Solvency II are set to hit the industry. Rules in Basel III are particularly pertinent to pointing the optimal route to market, however, since it states that any transactions cleared via a CCP do not require any allocation of capital, according to Lombardo.
“People will have to find different ways to distribute their business streams if they want to stay in the game,” said Lombardo, adding that sending trades to an exchange can also free up back offices to focus on more exotic trades taking place.
The entry of clearing services for the securities lending market comes at a time when beneficial owners have narrowed distribution pools in the wake of the Lehman collapse. But lenders should consider that both strategies can be adopted, said Jonathan Lombardo, head of sales at SecFinex, speaking to Data Explorers.
“Does a beneficial owner want to lose out on that potential revenue because the agent lender community might be a little reluctant to engage?” said Lombardo.
He points out that the latest ICMA figures show that 28 per cent of a $6 trillion fixed income lending industry trades via CCP – all broker-to-broker dealing.
And, in cooperation with trading partners LCH.Clearnet and Six x-clear, SecFinex can provide full post-trade functionality while also providing cost savings on other transactions such as monthly reconciliations.
Admittedly, Lombardo said it is early days yet - a reality punctuated by relatively low volumes. SecFinex currently has an estimated $300 – 400 million on loan and $1.2 billion of liquidity on a daily basis. But, Lombardo said, the CCP is looking to treble or quadruple that over the next year as regulation drives trades onto exchanges.
Apart from increased capital requirements from Basel III, other regulations intended to prevent systemic risk such as EMIR, MIFiD and Solvency II are set to hit the industry. Rules in Basel III are particularly pertinent to pointing the optimal route to market, however, since it states that any transactions cleared via a CCP do not require any allocation of capital, according to Lombardo.
“People will have to find different ways to distribute their business streams if they want to stay in the game,” said Lombardo, adding that sending trades to an exchange can also free up back offices to focus on more exotic trades taking place.
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