IMN: the role of CCPs in the securities finance ecosystem
12 May 2022 US
Image: peshkova/stock.adobe.com
Central counterparty clearing (CCPs) is expected to become a part of a broader ecosystem as the market requires balance sheet relief and a demand for additional efficient market access points, according to CEO of Provable Markets Matt Cohen
During the IMN Beneficial Owners’ International Securities Finance and Collateral Management conference, a “New Trading Platforms and Updates on CCPs” session revealed the future of CCPs in the securities finance sector.
CCPs are required to be a robust and resilient platform with cutting edge risk management, according to Jim Hraska, head of product development at the Depository Trust and Clearing Corporation’s (DTCC’s) fixed-income clearing corporation.
He says: “The aim should be to maximise use of capital and to reduce overall systemic risk. We also need to be able to further expand access to the markets to the buy-side.”
Following a similar expectation, Matt Wolfe, executive director, chief product owner of renaissance clearing at Options Clearing Corporation (OCC), notes that any CCP should have three things; a solid risk methodology, strong trade and post-trade processing, and the ability to effect settlement while managing collateral.
At OCC, Wolfe and his team are midway through a project to replace systems that address all three and ensure that we are prepared for the future.
Predicting his thoughts on next steps, Cohen follows on from his comments on CCPs entering a broader ecosystem.
He says: “The more that we get the benefit of what DTCC is doing in concert with the OCC in terms of growing and scaling access points from just settling regular trades to now adding in securities lending, is a big part of providing beneficial owners the opportunity to have more execution choice in the broader collateral management ecosystem. You can synchronise workflows, increase access points and reduce operational overhead.”
He continues to explain that there is a “big opportunity” to aid the growth of the ecosystem more broadly for what the market needs. “I think the CCP is a nice mechanism to get the credit and risk problem that you have solved for in an efficient manner with a lot of people who are already connected, but perhaps only indirectly,” Cohen adds.
Shaping the conversation around the needs of clients and providing solutions for the sector, Travis Keltner, head of financing and analytics at State Street, says State Street built its business around sponsored cleared activities or similar models.
Keltner takes into consideration the width and depth of how a CCP can help to deliver solutions for their clients, a number of which are looking for improved repo solutions. In terms of width, State Street thinks about having flexibility beyond the core service of the CCP, “extracting value in tailoring solutions for clients”, for example, how State Street built its product on the FICC sponsored repo model.
He continues: “As CCP solutions grow, you have some flexibility to retrofit your client solution to what the clearing firm is offering, and it is great that these models may accommodate some variations. Client needs are not one-size-fits-all; some customisation and flexibility around how you structure collateral pledges and contracts can maximise your opportunities.
“Why are we not unpacking variations of the CCP model — thinking how can we structure it in a way that suits our clients, like we are trying to do on the buy-side? That is where our focus lies with these types of models.”
During the IMN Beneficial Owners’ International Securities Finance and Collateral Management conference, a “New Trading Platforms and Updates on CCPs” session revealed the future of CCPs in the securities finance sector.
CCPs are required to be a robust and resilient platform with cutting edge risk management, according to Jim Hraska, head of product development at the Depository Trust and Clearing Corporation’s (DTCC’s) fixed-income clearing corporation.
He says: “The aim should be to maximise use of capital and to reduce overall systemic risk. We also need to be able to further expand access to the markets to the buy-side.”
Following a similar expectation, Matt Wolfe, executive director, chief product owner of renaissance clearing at Options Clearing Corporation (OCC), notes that any CCP should have three things; a solid risk methodology, strong trade and post-trade processing, and the ability to effect settlement while managing collateral.
At OCC, Wolfe and his team are midway through a project to replace systems that address all three and ensure that we are prepared for the future.
Predicting his thoughts on next steps, Cohen follows on from his comments on CCPs entering a broader ecosystem.
He says: “The more that we get the benefit of what DTCC is doing in concert with the OCC in terms of growing and scaling access points from just settling regular trades to now adding in securities lending, is a big part of providing beneficial owners the opportunity to have more execution choice in the broader collateral management ecosystem. You can synchronise workflows, increase access points and reduce operational overhead.”
He continues to explain that there is a “big opportunity” to aid the growth of the ecosystem more broadly for what the market needs. “I think the CCP is a nice mechanism to get the credit and risk problem that you have solved for in an efficient manner with a lot of people who are already connected, but perhaps only indirectly,” Cohen adds.
Shaping the conversation around the needs of clients and providing solutions for the sector, Travis Keltner, head of financing and analytics at State Street, says State Street built its business around sponsored cleared activities or similar models.
Keltner takes into consideration the width and depth of how a CCP can help to deliver solutions for their clients, a number of which are looking for improved repo solutions. In terms of width, State Street thinks about having flexibility beyond the core service of the CCP, “extracting value in tailoring solutions for clients”, for example, how State Street built its product on the FICC sponsored repo model.
He continues: “As CCP solutions grow, you have some flexibility to retrofit your client solution to what the clearing firm is offering, and it is great that these models may accommodate some variations. Client needs are not one-size-fits-all; some customisation and flexibility around how you structure collateral pledges and contracts can maximise your opportunities.
“Why are we not unpacking variations of the CCP model — thinking how can we structure it in a way that suits our clients, like we are trying to do on the buy-side? That is where our focus lies with these types of models.”
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