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BNY Mellon has become the first agent lender to centrally clear a securities lending transaction on behalf of a buy-side client through Eurex Clearing’s Lending CCP platform.
The trade, which was executed by BNY Mellon on behalf of an insurance company client, originally faced Morgan Stanley as counterparty, and ultimately cleared with Eurex Clearing, a central counterparty (CCP). The trade was matched and novated through Pirum’s CCP Gateway.
This transaction represents a major new route to market for BNY Mellon’s securities lending clients who will now have the ability to capitalize on growing market demand to undertake securities finance within a centrally-cleared environment, but without the obligations and responsibilities of traditional clearing house membership.
“This trade marks a watershed in the development of the securities lending market. Central clearing will add capacity to the market and provide new opportunities for our clients. Those clients who choose to participate in this new distribution channel should see increased utilization and better pricing, all while facing a highly-rated clearing house as counterparty,” said James Slater, Global Head of Securities Finance, Liquidity & Segregation at BNY Mellon.
“It has become apparent in recent years that the margin and operational efficiencies offered by central clearing have the potential to add huge value to the global securities finance landscape. That’s why we are so pleased that BNY Mellon has completed their integration into Eurex Clearing’s Lending CCP platform and we welcome their first clients into the centrally cleared construct. This is just the beginning, and we anticipate much greater utilization of our services going forward as the securities finance industry looks to realize the benefits of a CCP model,” said Marcel Naas, Managing Director of Eurex Clearing’s Lending CCP.
“Morgan Stanley is committed to supporting central clearing solutions for securities finance transactions and is pleased to be executing the first agent lender transaction on the Eurex Clearing Lending CCP platform. This marks a significant turning point for central clearing of securities finance transactions and adds another execution form in the SFT optimization tool kit,’’ said Arianne Collette, Executive Director from Bank Resource Management at Morgan Stanley.
This is the first time an agent lender has cleared a securities lending transaction through the Eurex Clearing model. Under this structure, a securities loan is negotiated bilaterally with the borrower, except that in this instance both parties agree to clear the transaction. The loan is novated to and settled with Eurex Clearing, which then becomes the counterparty to both the lending client and the borrower. BNY Mellon administers the loan with Eurex Clearing until the securities are returned and the loan is closed.
BNY Mellon has long been a champion of extending central clearing to buy-side clients. In January 2015 the firm announced its commitment to work toward developing a cleared securities lending structure to meet the specific needs of beneficial owners.
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