Securities Finance Industry News | IMN: The Role of Central Counterparties in the Securities Finance Ecosystem

Central Counterparty Clearing (CCP) Should Be Part of Larger Ecosystem as Market Needs Balance Sheet Relief and Demand for Additional Efficient Market Access Points, Says Provable Markets CEO , Matt Cohen.

At the IMN Beneficial Owners’ International Securities Finance and Collateral Management conference, a session “New Trading Platforms and Updates on CCPs” revealed the future of CCPs in the securities finance industry.

Central counterparties need to be a robust and resilient platform with state-of-the-art risk management, according to Jim Hraska, product development manager at the Depository Trust and Clearing Corporation’s (DTCC) fixed-income clearing firm.

He says: “The objective should be to maximize the use of capital and reduce overall systemic risk. We also need to be able to further expand market access on 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 robust risk methodology, robust trade and post-trade processing and the ability to settle while managing collateral.

At OCC, Wolfe and his team are halfway through a project to replace systems that meet all three and ensure we’re ready for the future.

Predicting his thoughts on next steps, Cohen follows up on his comments about CCPs entering a larger ecosystem.

He says, “The more we benefit from what DTCC is doing in concert with the OCC in terms of growing and scaling access points, from just settling regular transactions to adding securities lending, is a big part of providing beneficial owners with the ability to have more execution choices in the broader collateral management ecosystem. You can synchronize workflows, increase access points and reduce operational overhead. »

He goes on to explain that there is a “great opportunity” to help the ecosystem grow more broadly for what the market needs. “I think the CCP is a good mechanism to effectively solve the credit and risk problem that you solved with many people already connected, but maybe only indirectly,” adds Cohen.

Shaping the conversation around customer needs and providing solutions for the industry, Travis Keltner, Head of Funding and Analytics at State Street, explains that State Street has built its business around sponsored activities or similar models.

Keltner considers the breadth and depth of how a CCP can help provide solutions to its clients, a number of whom are looking for enhanced repo solutions. In terms of breadth, State Street thinks about having flexibility beyond the core CCP service, “extracting value by tailoring solutions for customers”, for example, how State Street has built its product on the model of FICC sponsored repo.

He continues, “As CCP solutions grow, you have some flexibility to tailor your client solution to what the clearing company offers, and it’s great that these models can accommodate some variation. Customer needs are not uniform; some customization and flexibility in how you structure warranty promises and contracts can maximize your opportunities.

“Why don’t we break down the variations of the CCP model – thinking how can we structure it in a way that works for our clients, like we’re trying to do on the buy side? This is where we focus with these types of models.

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