RMASL: CCP collateral rules are a worry
16 October 2015 Miami
Image: Shutterstock
Central counterparties’ (CCPs) collateral policies could spook beneficial owners, according to Jonathan Arnesen of BNP Paribas.
Speaking at the 32nd Risk Management Association Â鶹´«Ã½ Lending Conference in Miami, Arnesen, who is global head of agency securities lending at BNP Paribas, stated that beneficial owners are likely to be uncomfortable with the idea of giving up control of collateral gained through securities lending activity to a CCP.
"It's going to be a hard sell," commented Arnesen. "I don't know how to have that conversation yet but when we do we will have to explain that the collateral is treated in a different way than [they] are used to."
"There are still questions around costs and how the collateral will be managed but it [using CCPs] is inevitable—agents will engage with CCPs."
Concerns were also raised on the panel about what would happen in the event of a CCP defaulting.
"If the regulator wants a move towards a CCP, at what point will they say there's too much concentrated risk in the system?"
Arnesen said that BNP Paribas is not currently planning to indemnify CCPs as a way of mitigating beneficial owners’ concerns, but he added it may have to be considered despite the inherent complexities in doing so.
Speaking at the 32nd Risk Management Association Â鶹´«Ã½ Lending Conference in Miami, Arnesen, who is global head of agency securities lending at BNP Paribas, stated that beneficial owners are likely to be uncomfortable with the idea of giving up control of collateral gained through securities lending activity to a CCP.
"It's going to be a hard sell," commented Arnesen. "I don't know how to have that conversation yet but when we do we will have to explain that the collateral is treated in a different way than [they] are used to."
"There are still questions around costs and how the collateral will be managed but it [using CCPs] is inevitable—agents will engage with CCPs."
Concerns were also raised on the panel about what would happen in the event of a CCP defaulting.
"If the regulator wants a move towards a CCP, at what point will they say there's too much concentrated risk in the system?"
Arnesen said that BNP Paribas is not currently planning to indemnify CCPs as a way of mitigating beneficial owners’ concerns, but he added it may have to be considered despite the inherent complexities in doing so.
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