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Overview: CCPs in Securities Lending

Overview: CCPs in Securities Lending. October 14, 2013. The rationale for securities lending CCPs. OCC. Participants must be both a DTC and OCC clearing member

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Overview: CCPs in Securities Lending

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  1. Overview: CCPs in Securities Lending October 14, 2013

  2. The rationale for securities lending CCPs

  3. OCC • Participants must be both a DTC and OCC clearing member • Margin collateral: cash, US or Canadian government securities, GSE debt securities, and certain corporate bonds, letters of credit and stock • Both borrowers and lenders must post margin based on OCC STANS methodology • Borrowers are using OCC to ease counterparty credit limits and lend excess hard to borrows • Netting across OCC, CME and ICE products • OCC is clearing for AQS, a Quadriserv platform • Agent lenders and beneficial owners have not yet adopted OCC: need for a clearing agent, margin costs and asset holder regs are obstacles

  4. OCC securities lending volumes 2012-2013 Source: OCC

  5. Eurex Clearing • Newly launched in 2012, service allows asset holders to pledge margin collateral (no cash movement) for non-cash collateral including equities, bonds and ETFs • No requirement for clearing member • Cash collateral requires margin • Eurex Clearing targets borrowers affected by new cost of capital requirements • Clearing member borrowers must still post margin and contribute to default fund • As of October 2013, Eurex Clearing had published seven banks signed up to its service • Asset owners may be persuaded by borrowers to join Eurex Clearing for netting benefits

  6. Eurex Clearing CCP model for securities lending Lender Loan Negotiation Borrower Agent Lender Broker- Dealer Flow Provider* Trading Loan information Loan information Real-time loan validation Data transmission Agency agreement Eurex Clearing Beneficial Owner Specific Lender License Clearing Member Validation Clearing Membership Clearing Membership Novation Clearing Confirmation Loan life-cycle management Principal Collateral Loan securities Payment Bank Tri-party Agent CSD ICSD Cash Non-cash Equities Bonds Settlement *Flow Provider used as the entry channel from market participants to Eurex Clearing e.g. for New loan transactions, Re-rates, Recalls, Returns etc. Source: Eurex Clearing 6

  7. Contact Information Finadium LLC P.O. Box 560Concord, MA 01742 USATel: 1-978-318-0920Fax: 1-630-604-7394 http://www.finadium.com Josh Galper, Managing Principal jgalper@finadium.com

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