Cboe Clear Europe has received regulatory approval to clear European Securities Financing Transactions (SFTs), granted by De Nederlandsche Bank (DNB) and the Autoriteit Financiële Markten (AFM).
Vikesh Patel
With this approval, the pan-European clearing house will introduce a service for European SFT transactions in cash equities and ETFs, which includes central clearing, settlement and post-trade lifecycle management.
The service is available to principal lenders, special participant lenders (UCITS and non-UCITS) and borrowers, with settlements conducted across 19 European Central Securities Depositories (CSDs).
The service also supports key regulatory initiatives including EMIR, CSDR and the Securities Financing Transactions Regulation (SFTR), with the aim to help promote transparency, market integrity and the competitiveness of European capital markets.
“We are delighted to have received regulatory approval to expand into European SFT clearing, marking a significant milestone in our goal to introduce innovative, robust, and comprehensive clearing solutions across multiple asset classes in Europe,” said Vikesh Patel, president of Cboe Clear Europe.
“We greatly appreciate the support of our regulators as we deliver on our commitment to launch innovative services which we believe enhance efficiencies for European market participants and help foster the growth of the region’s capital markets.”
The concept of central clearing of SFTs is not new and has been tried before with varying degrees of success. In Europe, there have been multiple failed attempts to successfully introduce and maintain SFT clearing.
Eurex Clearing announced it was shutting down its Securities Lending CCP service in 2021 following low clearing volumes and a prioritisation of other businesses.
Other attempts included efforts from EuroCCP – which now operates as Cboe Clear Europe after being acquired by Cboe Global Markets in 2020. However, the group now believes it has the correct recipe for success.
The new service seeks to transform the existing bilateral process between securities lenders and borrowers into a centrally cleared model, with Cboe Clear Europe acting as the counterparty to both sides of each transaction.
The clearing house added that it believes this enables participants to reduce their risk-weighted asset exposures associated with SFTs and supports the growth of this key market.
Elsewhere, the service looks to bring a range of capital and operational advantages, including savings from cross-margining between cash equities and SFTs, greater settlement efficiencies, elimination of agent lender disclosures, and improved practices around fees management and corporate actions.
The Bank of New York Mellon Corporation and JP Morgan will be utilised by the service as tri-party collateral agents, while Pirum will serve as the transmitter of new trade instructions and post-trade lifecycle events on behalf of clients.
“We are excited to build out this new clearing eco- system in collaboration with market participants and are already in advanced discussions with a wide variety of firms, including banks, asset managers, broker-dealers, and agent lenders – representing beneficial owners like pension funds and UCITS – to help ensure a smooth launch in the coming weeks and months,” said Jan Treuren, senior director, product at Cboe Clear Europe.
“Initially, the service will cover key European markets, with plans to expand the offering based on client demand and market developments.”