RMA conference on securities lending: the ghost of Christmas future
09 October 2012 Miami
Image: Shutterstock
The Risk Management Association's (RMA's) 29th Annual Conference on Securities Lending kicked off with a comprehensive update on efforts to reform and transform the US triparty repo market.
Panellists John Morik of BNY Mellon, Edward Corral of Morgan Stanley, Gary Chan of DTCC and Mark Trivedi of J.P. Morgan, who all sit on the Task Force on Tri-Party Repo Infrastructure and have taken leading roles in working to achieve the “target state” of a safer and more robust settlement process for the triparty repo market that would not rely on significant discretionary intraday credit, sat alongside Vic Chakrian of the Federal Reserve Bank of New York to provide attendees with the update.
“We're talking about introducing a significant amount of control into the platform,” began Trivedi. To achieve the target state, the panel outlined key components with the overall aim of reducing reliance on intraday credit. “Ultimately, the goal is to cap the level of credit that banks are exposed to,” added Morik.
Key components include one large, initial batch of trades having a 3pm deadline to confirm funding is in place, a clear common rule set governing the settlement priority for each dealer's trades across all cash investors, and a secured credit cap of 10 percent from the clearing bank.
Morik said that the goal of the reforms is for clearing banks to cap secured credit at no more than 10 percent of their triparty repo books, adding that the other key components have to be in place before the cap can be implemented and the market can “draw away from the intradealer liquidity that we currently provide”.
With a deadline of the end of 2013, the target state is within the market's grasp, and Trivedi said that while reforms have “made it harder to do repo in the US, the market is bigger than ever”. According to Chakrian, the US triparty repo market is worth $1.8 trillion in intraday credit. Developing and sustaining a more resilient market and infrastructure, particularly in times of stress, is “pretty critical across the board”.
Gregory Lyons of Debevoise & Plimpton and Bruce McDougal of BlackRock tackled regulatory reform and its effects on securities lending and borrowing. They emphasised the threat that Basel III capital requirements and US Dodd-Frank Act Section 165(e) counterparty concentration limits pose to securities finance indemnification.
Basel III could make securities lending too expensive to conduct, while Section 165(e)—or “the ghost of Christmas future”, as Lyons described it—may make it “impossible to lend to counterparties”, according to McDougal.
There was also an update on what the RMA and the Securities Industry and Financial Markets Association (SIFMA) have been working on recently. Jason Strofs of the RMA and Anthony Schiavo of SIFMA emphasised the importance of association cooperation and communication.
Panellists John Morik of BNY Mellon, Edward Corral of Morgan Stanley, Gary Chan of DTCC and Mark Trivedi of J.P. Morgan, who all sit on the Task Force on Tri-Party Repo Infrastructure and have taken leading roles in working to achieve the “target state” of a safer and more robust settlement process for the triparty repo market that would not rely on significant discretionary intraday credit, sat alongside Vic Chakrian of the Federal Reserve Bank of New York to provide attendees with the update.
“We're talking about introducing a significant amount of control into the platform,” began Trivedi. To achieve the target state, the panel outlined key components with the overall aim of reducing reliance on intraday credit. “Ultimately, the goal is to cap the level of credit that banks are exposed to,” added Morik.
Key components include one large, initial batch of trades having a 3pm deadline to confirm funding is in place, a clear common rule set governing the settlement priority for each dealer's trades across all cash investors, and a secured credit cap of 10 percent from the clearing bank.
Morik said that the goal of the reforms is for clearing banks to cap secured credit at no more than 10 percent of their triparty repo books, adding that the other key components have to be in place before the cap can be implemented and the market can “draw away from the intradealer liquidity that we currently provide”.
With a deadline of the end of 2013, the target state is within the market's grasp, and Trivedi said that while reforms have “made it harder to do repo in the US, the market is bigger than ever”. According to Chakrian, the US triparty repo market is worth $1.8 trillion in intraday credit. Developing and sustaining a more resilient market and infrastructure, particularly in times of stress, is “pretty critical across the board”.
Gregory Lyons of Debevoise & Plimpton and Bruce McDougal of BlackRock tackled regulatory reform and its effects on securities lending and borrowing. They emphasised the threat that Basel III capital requirements and US Dodd-Frank Act Section 165(e) counterparty concentration limits pose to securities finance indemnification.
Basel III could make securities lending too expensive to conduct, while Section 165(e)—or “the ghost of Christmas future”, as Lyons described it—may make it “impossible to lend to counterparties”, according to McDougal.
There was also an update on what the RMA and the Securities Industry and Financial Markets Association (SIFMA) have been working on recently. Jason Strofs of the RMA and Anthony Schiavo of SIFMA emphasised the importance of association cooperation and communication.
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