ISLA: demand up for equity as collateral
03 September London
Image: Shutterstock
Equities now take up 57 percent of all collateral held by triparty service providers, according to an International Securities Lending Association (ISLA) market study.
The latest new figure represents a 4 percent rise in equity as collateral between December 2014 and 30 June 2015 and highlights the ongoing industry trend towards favouring non-cash collateral.
The difference came from a drop-off in use of corporate bonds as collateral, which fell from 12 percent to 8 percent during the same period.
In total, 60 percent of loans are now completed using non-cash collateral, as of 30 June 2015—up from 55 percent six months before.
This trend is most obvious in European government bond lending, which ISLA recorded to have 90 percent of all loans being collateralised with other securities.
ISLA cited the ‘regulatory backdrop’ as the primary driver shaping market behaviour, specifically elements of the European Market Infrastructure Regulation and Basel III, such as the liquidity coverage ratio, and encouraging the march to use high-quality liquid assets (HQLAs).
“Balance sheets and capital charges make the use of equities increasingly attractive for banks to provide as collateral and the absence of any real returns in the short term money markets is making cash collateral less attractive to lenders,” stated ISLA.
This point is reinforced by the fact that government bonds now make up 39 percent of all securities on-loan. The stricter regulatory environment has caused a consistent rise in the proportion of HQLA loans over the past 12 months.
Overall, the ISLA Global Securities Lending Aggregate reported that, as of June 2015, there was just over €1.8 trillion of securities on-loan, taken from a total available pool valued at just under €14 trillion.
This represents growth of 8 percent from December 2014.
The value of total on-loan securities has risen consistently over the past 18 months but ISLA’s data shows a spike in activity in H1 2015 compared to the previous six months.
Compared to the latest jump from roughly €1.7 billion to €1.8 trillion in six months the global securities aggregate from June to December 2014 was only a modest improvement from €1.65 trillion to roughly €1.67 trillion.
The latest new figure represents a 4 percent rise in equity as collateral between December 2014 and 30 June 2015 and highlights the ongoing industry trend towards favouring non-cash collateral.
The difference came from a drop-off in use of corporate bonds as collateral, which fell from 12 percent to 8 percent during the same period.
In total, 60 percent of loans are now completed using non-cash collateral, as of 30 June 2015—up from 55 percent six months before.
This trend is most obvious in European government bond lending, which ISLA recorded to have 90 percent of all loans being collateralised with other securities.
ISLA cited the ‘regulatory backdrop’ as the primary driver shaping market behaviour, specifically elements of the European Market Infrastructure Regulation and Basel III, such as the liquidity coverage ratio, and encouraging the march to use high-quality liquid assets (HQLAs).
“Balance sheets and capital charges make the use of equities increasingly attractive for banks to provide as collateral and the absence of any real returns in the short term money markets is making cash collateral less attractive to lenders,” stated ISLA.
This point is reinforced by the fact that government bonds now make up 39 percent of all securities on-loan. The stricter regulatory environment has caused a consistent rise in the proportion of HQLA loans over the past 12 months.
Overall, the ISLA Global Securities Lending Aggregate reported that, as of June 2015, there was just over €1.8 trillion of securities on-loan, taken from a total available pool valued at just under €14 trillion.
This represents growth of 8 percent from December 2014.
The value of total on-loan securities has risen consistently over the past 18 months but ISLA’s data shows a spike in activity in H1 2015 compared to the previous six months.
Compared to the latest jump from roughly €1.7 billion to €1.8 trillion in six months the global securities aggregate from June to December 2014 was only a modest improvement from €1.65 trillion to roughly €1.67 trillion.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
