BNY has partnered with pan-European clearing house Cboe Clear Europe’s to clear securities finance transactions (SFTs) on behalf of UCITS clients.

The agent lender is the first to go live with a centrally cleared triparty model supporting UCITS-compliant clearing, in addition to its role as tri-party collateral agent. BNY’s UCITS agent lending clients become special clearing participants with the pan-European CCP. The milestone expands the service to a new client segment since launching in March.

Jan Treuren, senior director product at Cboe Clear Europe, described the UCITS addition as “a significant development for both participants and the securities finance market as a whole.”

How does it work?

The partnership uses a new title transfer model with a pledge-back feature, tailored specifically for UCITS clients. This structure enables UCITS and other beneficial owner lenders such as sovereign wealth funds, pension funds, and central banks to centrally cleared SFTs without posting margin or contributing to the CCP’s default fund when acting as lenders. This increases the amounts of assets on loan for borrowers 

A press release from Cboe Clear Europe said the partnership transforms traditional bilateral process for SFTs in European equities and ETFs into a centrally cleared model which aims to optimise capital including Risk-Weighted Assets (RWA) reductions for certain clearing participants. 

Additionally, Cboe Clear Europe as CCP for cash equities offers cross-product margin offsets between cash equities and SFT trades, while BNY delivers enhanced collateral efficiency and liquidity through it’s Global Collateral Platform.

The bigger picture

Vikesh Patel, president, Cboe Clear Europe added: “By leveraging BNY’s expertise and Cboe Clear Europe’s clearing capabilities, we have created an innovative solution that is designed to enhance market confidence, optimise collateral efficiency, and empower UCITS participants to engage in securities finance with unparalleled levels of security and transparency.” 

BNY and J.P. Morgan are the two tri-party collateral agents of the service, which is integrated with Pirum for trade instruction and lifecycle event processing.

Cboe Clear Europe said it aims to expand the SFT clearing service to cover other lendable securities and new jurisdictions in the next year.