Morgan Stanley to Join Eurex Clearing’s Securities Lending CCP

Morgan Stanley is set to join Eurex Clearing as a member of its securities lending CCP (central counterparty), a process that is set to be finalized by the end of the month.

By becoming a clearing member, Eurex Clearing hopes to boost participation on the securities lending platform by offering buy-side clients of the investment bank tiered membership as a means to increase liquidity available on the CCP.

“Morgan Stanley is supportive of CCP solutions for securities lending such as the Eurex Clearing model as it allows us to preserve our client relationships and deliver best execution with risk, resource and operational efficiencies,” says Susan O’Flynn, global head of CCP strategy and optimization, Morgan Stanley.

“Tiered membership plays a critical part in facilitating buy-side participation through different forms such as the Specific Lender License.”

Securities lending CCPs have had a slow start, particularly in the U.S. Eurex launched its securities lending CCP in November 2012 and currently has four clearing members which include DekaBank, ING Bank, Maple Bank, and SEB.

The admission of Morgan Stanley marks the first U.S.-based investment bank and the largest clearing member to join the Eurex Clearing securities lending platform.

“We have been working closely with Eurex Clearing to expand and enhance this service to ensure the final product will result in a robust platform that supports greater liquidity for our clients in the securities financing market,” adds Tom Wipf, global head of bank resource management, Morgan Stanley.

While European regulators have pushed for central clearing in the OTC derivatives market, securities lending still remains largely outside its radar.

There has been a lot of reluctance to move securities lending onto an electronic platform, much less a CCP, and pushing securities lending onto a CCP could be seen as a complicating factor because it is traditionally a bilateral and very relationship-based business.

However, with Morgan Stanley as a clearing member, participation is set to increase and could also lead to a bigger drive for central clearing adoption.

“This confirms the strong value proposition of our clearing service for bilaterally agreed securities lending transactions,” says Matthias Graulich, chief client officer, Eurex.

Speaking to Global Custodian, Kevin McNulty, CEO, International Securities Lending Association (ISLA), said, “The sense I have is that there will be more business transacted through CCPs in 18 months’ time than there is today.”