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In a recent whitepaper we discuss the credit and real- of the CCPs and their members – many of which are Irrespective of whether the securities lending
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world risk within the highly concentrated global custody About Credit Benchmark not rated by the main credit rating agencies. As for the transactions are conducted under a Pledge GMSLA or
market which is dominated by eight major custodial custodians and sub-custodians previously mentioned, it via a specialist CCP or both, the impact of Covid -19
banks. Figure x below shows the extent to which Credit Benchmark is the world’s most is important to understand the structure and risks within upon credit transitions is visible in Figure x.
these eight banks utilise the sub-custodial services comprehensive source of Consensus risk data on the CCP networks. Figure x shows the extent to which
provided by one another as well as “other” providers. 50,000 + entities, more than 75% of which are the global CCPs have a credit rating. The general bias at present is unsurprisingly
Any organisation appointing a custodian to hold their unrated by the credit rating agencies (CRAs). By towards downgrades and the table shows
pledge assets should understand the underlying credit aggregating and anonymizing credit data from This is split into two sections; by the “issuer paid” public that several CCP Members have dropped from
and real-world risk, and carefully monitor the networks 40+ of the world’s leading financial institutions, ratings from a credit rating agency; and the “skin-in- Investment Grade to High Yield.
that their custodian or sub-custodian is part of. Ideally Credit Benchmark provides a unique view on the-game” credit Consensus ratings created by Credit
this will involve automated monitoring and alerting counterpart creditworthiness. Credit Benchmark Benchmark with credit views sourced from contributing It reinforces the need to constantly monitor
embedded into an early warning process designed to data can be delivered securely into your financial institutions. Figure x shows the same these networks and individual firms and build
protect their or their clients’ best interests. The first step proprietary or industry-standard systems to bring breakdown, for the individual CCP members. automated early warning capabilities.
is to map out the often complex interlinkage within the efficiencies and automation to your workflow
custodial and sub-custodial network and then to gather and benefits to you and your clients.
the necessary credit information. After that the capital
benefits can be compared to alternatives with a clear Fig 14: Ratings Available for CCPs Fig 15: Ratings Available for Individual CCP Members
understanding of the facts.
Central Clearing Counterpart
(CCP) for Securities Lending Covered by big 3 CRA Covered by big 3 CRA
Extra coverage by CB Extra coverage by CB
The development of a viable Central Clearing Not related Not related
Counterpart (CCP) for securities lending has been a long
time in the making and a regular topic for discussion 80 1200
at industry events over many years. The objective
of reducing the cost of capital for the borrowers is a
primary driver behind these initiatives. There are a
number of competing offers available now or under 1000
development. The impetus brought on by the rising 60
expense and scarcity of capital has encouraged these
specialised solutions. 800

The CCP impacts credit and systemic risk since the
CCP is the legal counterparty to all transactions. The 40 600
borrowers enjoy the advantage of borrowing at lower
capital cost because the CCP typically, although not
always, has a Consensus credit rating and that rating is 400
often as good as that of beneficial owners.
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In a recent whitepaper we explore the CCP networks 200
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globally and the corresponding Consensus credit quality

³Credit Benchmark 2020, Global Custodians, Sub-Custodian Networks and ⁴Credit Benchmark 2020, The Creditworthiness of CCPs and the Global 0 0
Credit Risk, Credit Benchmark, downloadable here Clearing Member Network, Credit Benchmark, downloadable here

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