Cboe Clear Europe, Cboe’s Amsterdam-based pan-European clearing house, has secured the support of additional participants to prepare the launch of its central counterparty clearing service for securities financing transactions.
Bank of America and State Street have committed to supporting the service which will launch in Q3 2024, subject to regulatory approvals.
The announcement brings the total number of participants for the service to nine, with the support of borrower participants including ABN AMRO Clearing Bank, Citibank and J.P. Morgan, and BNY Mellon as agent lender.
The service aims to introduce matching, central counterparty (CCP) clearing, settlement and post-trade lifecycle management for SFT transactions in European cash equities and exchange-traded funds (ETFs).
The upcoming service was first announced in June 2023, where Cboe Clear Europe welcomed the project as the only pan-European CCP offering these consolidated services for SFTs in European cash equities and ETFs.
It will be available to principal lenders, special participant lenders — UCITS and non-UCITS — and borrowers.
Settlement will take place in 19 European central securities depositories (CSDs), with non-cash required values (RQV) managed at two triparty collateral agents and cash RQV via cash correspondent banks.
By offering access to a CCP clearing and settlement service for SFTs, Cboe Clear Europe says it will help clients address Basel III endgame and Basel IV frameworks in respect of Capital Requirements Regulation (CRR) and Capital Requirements Directive (CRD).
It is designed to reduce risk-weighted asset (RWA) exposures associated with bilateral SFTs and bring operational advantages including greater settlement efficiency leading to a reduction in fail fines.
Commenting on the announcement, Cboe Clear Europe president Vikesh Patel says: “We [have] added two major participants in the European securities lending industry to the group of firms supporting the launch of the SFT service and benefit from their collective expertise as we finalise our offering.
“Their recent commitment – and the calibre of the group of early adopters we have assembled as a whole – clearly demonstrates the growing need to introduce central clearing to the European SFT market and help reduce risk in this key activity.”
Alessandro Cozzani, managing director at Bank of America, adds: “Developing a cleared product for securities lending is a natural evolution in our secured financing market, which should allow for greater risk optimisation with counterparties.”
