ISLA warns of market shrinkage
19 October 2016 London
Image: Shutterstock
The combined weight of regulatory burdens could “push institutional lenders away from the securities lending market” and cause a drain on liquidity, according to the International Securities Lending Association (ISLA).
In its fifth market report, ISLA cited the Securities Financing Transaction Regulation, the Bank Recovery and Resolution Directive and the Central Securities Depository Regulation as the most stringent regulatory frameworks troubling the industry.
It also highlighted the further restrictions on UCITS coming down the pipeline as another strain on market participants.
“This [participant withdrawal] in turn could lead to a loss of market liquidity and make it harder and more expensive for institutional investors to invest in equity markets and for government institutions to issue and manage existing government bond programmes,” explained ISLA.
“The increasingly harsh regulatory environment facing many retail funds, notably UCITS, has led to a permanent shift in borrowers behaviour as they look to borrow securities from entities that better match their own regulatory requirements,” ISLA continued.
However, ISLA, which collates its market report data from all three major industry data providers, also noted that despite this troubling forecast, the value of securities on-loan has actually increased by 4 percent over the past six months to now stand at €1.9 trillion.
Unsurprisingly, the report reconfirmed that mutual funds and pension plans continue to dominate the global lending pool. Together, they again account for 66 percent of the reported €14 trillion of securities that institutional investors make available for lending.
The London-based association also used its latest report to reassure members that the UK’s decision to leave the EU, although hugely significant to the wider financial market of both the UK and the EU, does not pose an imminent threat to UK-based market participants.
“It is important to stress that the so-called Brexit decision does not fundamentally change any of the legal constructs that govern our industry so day to day business continues uninterrupted.”
In its fifth market report, ISLA cited the Securities Financing Transaction Regulation, the Bank Recovery and Resolution Directive and the Central Securities Depository Regulation as the most stringent regulatory frameworks troubling the industry.
It also highlighted the further restrictions on UCITS coming down the pipeline as another strain on market participants.
“This [participant withdrawal] in turn could lead to a loss of market liquidity and make it harder and more expensive for institutional investors to invest in equity markets and for government institutions to issue and manage existing government bond programmes,” explained ISLA.
“The increasingly harsh regulatory environment facing many retail funds, notably UCITS, has led to a permanent shift in borrowers behaviour as they look to borrow securities from entities that better match their own regulatory requirements,” ISLA continued.
However, ISLA, which collates its market report data from all three major industry data providers, also noted that despite this troubling forecast, the value of securities on-loan has actually increased by 4 percent over the past six months to now stand at €1.9 trillion.
Unsurprisingly, the report reconfirmed that mutual funds and pension plans continue to dominate the global lending pool. Together, they again account for 66 percent of the reported €14 trillion of securities that institutional investors make available for lending.
The London-based association also used its latest report to reassure members that the UK’s decision to leave the EU, although hugely significant to the wider financial market of both the UK and the EU, does not pose an imminent threat to UK-based market participants.
“It is important to stress that the so-called Brexit decision does not fundamentally change any of the legal constructs that govern our industry so day to day business continues uninterrupted.”
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