Securities lending can help markets to emerge, says roundtable
31 January 2017 London
Image: Shutterstock
A securities lending function is an important enabler for boosting liquidity in emerging exchanges, heard participants of a recent World Federal of Exchange (WFE) roundtable in London.
The roundtable, hosted in partnership with consultancy Oliver Wyman last week, discussed the results of a joint report on how exchanges and the buy side can boost liquidity in emerging markets.
WFE and Oliver Wyman’s report and roundtable, which featured international buy-side firms, as well as representatives from exchanges in both emerging and developed markets including Bermuda, Brazil, India and Japan, identified the development of a diverse investor base, increasing the pool of available securities, and creating an enabling market environment, as three key areas that exchanges and regulators can focus on to increase liquidity.
Daniela Peterhoff, partner and global head of market infrastructure at Oliver Wyman, said of the issues: "Buy-side participants can act as a catalyst for growth of the overall capital markets ecosystem. Bringing them closer to emerging markets by offering dedicated solutions is crucial to enhance liquidity."
One such solution put forward was the implementation of a securities lending function in emerging exchanges.
“Securities lending and borrowing is an important enabler for the successful introduction of short selling, as well as market-making programmes, and the introduction of products such as equity derivatives and exchange-traded funds,” WFE and Oliver Wyman’s report explained.
“As markets mature and as they seek to attract international investors, they look to gradually enable short selling and/or securities lending and borrowing.”
The report did warn that exchanges looking to implement a securities lending function must focus on creating a well-managed and safe environment for the business.
“There are several risks associated with securities lending and borrowing that may have systemic implications. These include counterparty credit risk, operational risk, collateral risk, settlement risk, and market risk. There is no one-size-fits-all approach to implementing securities lending and borrowing.”
Nandini Sukumar, CEO of WFE, commented: "Institutional investors are crucial in the creation of market liquidity. They create information flows and contribute to market efficiency, positively influencing liquidity. This, as our report shows, is particularly important in emerging markets."
The roundtable, hosted in partnership with consultancy Oliver Wyman last week, discussed the results of a joint report on how exchanges and the buy side can boost liquidity in emerging markets.
WFE and Oliver Wyman’s report and roundtable, which featured international buy-side firms, as well as representatives from exchanges in both emerging and developed markets including Bermuda, Brazil, India and Japan, identified the development of a diverse investor base, increasing the pool of available securities, and creating an enabling market environment, as three key areas that exchanges and regulators can focus on to increase liquidity.
Daniela Peterhoff, partner and global head of market infrastructure at Oliver Wyman, said of the issues: "Buy-side participants can act as a catalyst for growth of the overall capital markets ecosystem. Bringing them closer to emerging markets by offering dedicated solutions is crucial to enhance liquidity."
One such solution put forward was the implementation of a securities lending function in emerging exchanges.
“Securities lending and borrowing is an important enabler for the successful introduction of short selling, as well as market-making programmes, and the introduction of products such as equity derivatives and exchange-traded funds,” WFE and Oliver Wyman’s report explained.
“As markets mature and as they seek to attract international investors, they look to gradually enable short selling and/or securities lending and borrowing.”
The report did warn that exchanges looking to implement a securities lending function must focus on creating a well-managed and safe environment for the business.
“There are several risks associated with securities lending and borrowing that may have systemic implications. These include counterparty credit risk, operational risk, collateral risk, settlement risk, and market risk. There is no one-size-fits-all approach to implementing securities lending and borrowing.”
Nandini Sukumar, CEO of WFE, commented: "Institutional investors are crucial in the creation of market liquidity. They create information flows and contribute to market efficiency, positively influencing liquidity. This, as our report shows, is particularly important in emerging markets."
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