PASLA: CCPs are a natural evolution of the industry
07 March 2019 Sydney
Image: Shutterstock
Central clearing counterparties (CCPs) are a natural evolution of the industry, one panellist said at the PASLA/RMA conference in Sydney.
The panellist said: “We want more transparency and diversification from banks. The point is not to disintermediate banks—it is a diversification away from banks if anything.”
They added: “You could make some strong arguments that certain institutional hedge funds would be less risky counterparties than some of the banking counterparties.”
The panel also discussed China China Securities Finance Corporation Limited (CSFC) collateral acceptance.
One speaker said: “There is so much change happening in China and it is hard to keep up with it all. I would place caution on the announcements, as they can be different as to what happens in practice.”
“For example, it was said that stock connect was short seller eligible but there was a diversion. There was a big announcement in China in late January on utilisation so we might need to see where that goes in practice first, in my opinion.”
The panel also discussed physical securities based lending versus synthetics, and which is preferable. One speaker noted that the question is becoming more prominent.
One panellist commented: “There are markets where one or the other is preferable but this is not always the case. The regulation has made things somewhat fragmented in the sense that you can be based in an entity in London but they may have a different experience in an entity in the US or Singapore.”
Another speaker said: “The great thing about securities lending is that it has become standardised over the past 30 years, and there has been a lot of work towards that end.”
“Synthetics are not standardised, every bank has a different operating model. It is operationally intensive it is a great product, there is an obvious demand for it, it works but it takes a lot of effort.”
Echoing this, one panellist cited: “Balance sheet optimisation is what drives the existence of synthetics but the factors that determine what you do, focus on and how you balance, really has to be on the operational platform set up.”
“If you’re doing it manually then it is not scalable and if it is not scalable then you’re not really deciding between one versus the other. That setup, the systems and risk management is automatically there to weigh the factors to determine what you’re going to do and how you’re going to achieve it.”
The panellist said: “We want more transparency and diversification from banks. The point is not to disintermediate banks—it is a diversification away from banks if anything.”
They added: “You could make some strong arguments that certain institutional hedge funds would be less risky counterparties than some of the banking counterparties.”
The panel also discussed China China Securities Finance Corporation Limited (CSFC) collateral acceptance.
One speaker said: “There is so much change happening in China and it is hard to keep up with it all. I would place caution on the announcements, as they can be different as to what happens in practice.”
“For example, it was said that stock connect was short seller eligible but there was a diversion. There was a big announcement in China in late January on utilisation so we might need to see where that goes in practice first, in my opinion.”
The panel also discussed physical securities based lending versus synthetics, and which is preferable. One speaker noted that the question is becoming more prominent.
One panellist commented: “There are markets where one or the other is preferable but this is not always the case. The regulation has made things somewhat fragmented in the sense that you can be based in an entity in London but they may have a different experience in an entity in the US or Singapore.”
Another speaker said: “The great thing about securities lending is that it has become standardised over the past 30 years, and there has been a lot of work towards that end.”
“Synthetics are not standardised, every bank has a different operating model. It is operationally intensive it is a great product, there is an obvious demand for it, it works but it takes a lot of effort.”
Echoing this, one panellist cited: “Balance sheet optimisation is what drives the existence of synthetics but the factors that determine what you do, focus on and how you balance, really has to be on the operational platform set up.”
“If you’re doing it manually then it is not scalable and if it is not scalable then you’re not really deciding between one versus the other. That setup, the systems and risk management is automatically there to weigh the factors to determine what you’re going to do and how you’re going to achieve it.”
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