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Overcoming QE related collateral shortages

Quantitative Easing (QE) has arrived in Europe, with plans to buy €60 billion of high quality assets each month for, at least, the next 18 months under the Public Sector Purchasing Programme (PSPP) overseen by the Eurosystem.

The Eurosystem is determined to implement QE with minimum adverse effects to the market. To achieve that goal they have recently announced that bonds purchased under the PSPP programme are available for securities lending to support bond and repo market liquidity.

Realising regulatory intent

Each National Central Bank is responsible for both purchasing the bonds and lending them back to the market through the channels they choose. Euroclear is committed to supporting the Eurosystem in achieving its objectives to implement monetary policy without adversely affecting the financial markets leveraging more than 30 years of securities’ lending experience to offer the strongest possible securities lending service to Central Banks.

Eurosystem central banks will make their PSPP holdings available through different lending channels, including the lending infrastructure of CSDs and ICSDs.

Eurosystem central banks can also make their PSPP holdings available for the fails mitigation lending programmes of the CSDs and ICSDs.

Accessing PSPP securities

Euroclear clients can access two complementary securities lending programmes:

  • GC Access, a strategic lending service, designed to respond to the unprecedented demand for HQLAs in the light of new regulations. It provides collateralised securities lending and borrowing opportunities. It is therefore an ideal end-to-end solution to the assets purchased and held by the Eurosystem Central Banks.
    Banco de Portugal has just announced that it is making the holdings of securities purchased under PSPP available for securities lending through GC Access as from 7 April 2015.

  • Securities Lending & Borrowing (SLB) is a settlement fails-related lending service. This service is designed to reduce settlement fails to a minimum by providing Euroclear clients access to a large lendable pool of securities made available by other clients. Users of the programme can automatically borrow the securities they need to fulfil their settlement obligations.
    The ECB is a direct participant along with the National Central Banks of Finland, Ireland, Spain, the Netherlands, Portugal and Slovenia, able to lend PSPP assets in the programme to reduce the risk of settlement fails as a result of a potential shortage of those securities.

Discussions are ongoing with the other Eurozone’s central banks. We shall keep you posted on the progress of these discussions.


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