Bbeneficial owners revealed their fears that regulation could have unintended consequences for securities finance. One concern was that future capital rules would increasingly drive the business onto central counterparties (CCPs), which will receive a low risk weighting under Basel III.

Richard Hochreutiner, head of global collateral, Swiss Re, said that while he was not an advocate of CCPs in securities lending, beneficial owners might have no choice in the future.

“Personally, I’m not a fan of CCPs. I don’t see the benefits for beneficial owners. CCPs are great for people to get the benefit of netting and balance sheet relief from two-way business but I don’t see that for beneficial owners as we’re always on the same side of the market.

"Maybe CCPs will become a hard fact of life for beneficial owners if no one has balance sheet to do business. Otherwise, if they are just an alternative route, beneficial owners would probably like to shy away from CCPs.”

In a poll, the largest group of delegates, 45%, said that CCPs would not become the main route while 35% said it would become the dominant route if the model was adapted to the reality of the business.

Roelof van der Struik, investment manager at PGGM, said: “I don’t think the market is efficient enough at the moment if a more efficient route to market is a central clearinghouse then we could see more flows through CCPs. The market should try to evolve quickly. If it does not there will be a systemic jolt somewhere and someone will step in to make it more efficient.”

He added that if PGGM were forced to use CCPs it could mean the end of its securities lending programme.

The panel discussed how regulation could impact the ability of institutional investors to be involved in markets such as repo.

Hochreutiner said: “This market is extremely important for mindful non-banking financial institutions such as us and some of the regulations could be going in a direction that are not good for us. I remain very concerned."

"Some of the proposed new regulations may have the undesired side-effect to limit market access of non-bank financial institutions, such as insurers, which on the one hand use the repo market to invest cash on a secured basis and on the other hand can use repo as efficient cash management tool to raise short-term cash thereby reducing the need to fire sell assets."

He called for beneficial owners and the industry to join forces to make sure regulators understood the potentially negative impact on ordinary people. 

“It’s important we work together and make clear that it’s not just a bunch of fat bankers moaning. The side-effects of some regulatory proposals will result in higher costs or lower yields for pensioners and life insurance policy holders and more importantly in some instances in higher risks.”


The panellists spoke at the annual Euroclear Collateral Conference in Brussels on May 12.

Click on the hyperlinked titles below to read more coverage from the Euroclear conference:

- Appeal of collateral downgrades to fall

- Feeling the pressure in repo

- Poll: regulation casts gloom on securities lending