ISLA update: many of those assets we have enjoyed could disappear
09 October 2018 London
Image: Shutterstock
“The market is going to change and many of those assets that we have enjoyed could disappear”, warned Andrew Dyson, CEO of the International Securities Lending Association (ISLA) at ISLA’s annual post trade conference.
Dyson elaborated on the title of the conference “The Road to Efficiencies”, by explaining that the industry has come a long way since it began.
He said: “If you look as recently as the late to mid-1990’s, that journey of efficiency is something that we can all be proud of in the securities lending world and we should keep that in mind today.”
“In Europe, there are 2.1 trillion of securities on loan, and 46 percent are government bonds. Securities lending is one of the most efficient legal settlement constructs that we have”, Dyson added.
“Growth of this type of business is a prime example of how banks have used securities lending in a certain way to reflect market demand.”
He continued: “Non-cash collateral represents 67 percent of all collateral, which means that we have a business that is operationally very intensive. I might argue that the repo guys have it a bit easy because they always have cash on their side of the trade.”
Elaborating on this, he said: “We have securities and potentially securities on the other side, which presents some challenges, and makes our business a little bit more complicated.”
“Meanwhile, mutual funds represent 47 percent of all inventory and that 47 percent equates to about 18 percent of online available balance—if that is the availability.”
“Therefore, we believe that there is something there that it is not quite right, potentially this is because of the restrictions placed on funds.”
Reflecting on almost a decade to the day that RBS announced its colossal share fall, Dyson commented: “Banks need to be adequately funded and they need to have the right level of equity.”
He added that there is a desire within “EU 26” to have a more broadly market-based economy.
In regards to the Securities Financing Transactions Regulation (SFTR), technical standards are currently between the European Securities and Markets Authority (ESMA) and the European Commission.
Dyson explained that if the Commission got their way, there would be a small revision to the Markets in Financial Instruments Directive and, although unlikely, Dyson added that the Commission could start the whole process again.
Looking at the positives of SFTR, Dyson highlighted that it is forcing the industry to shine a light on certain aspects that some often shy away from, such as legal entity identifiers.
“This is forcing us to the table of revision and re-thinking, it is the Commission's job to make markets safer and more resilient. We are stepping up.”
Discussing the new pledge collateral master agreement, Dyson said: “The new pledge collateral master agreement provides a framework in the market for people to look at an alternative to previous transfer arrangements. It is important that construct works, this needs to be ensured.”
Dyson elaborated on the title of the conference “The Road to Efficiencies”, by explaining that the industry has come a long way since it began.
He said: “If you look as recently as the late to mid-1990’s, that journey of efficiency is something that we can all be proud of in the securities lending world and we should keep that in mind today.”
“In Europe, there are 2.1 trillion of securities on loan, and 46 percent are government bonds. Securities lending is one of the most efficient legal settlement constructs that we have”, Dyson added.
“Growth of this type of business is a prime example of how banks have used securities lending in a certain way to reflect market demand.”
He continued: “Non-cash collateral represents 67 percent of all collateral, which means that we have a business that is operationally very intensive. I might argue that the repo guys have it a bit easy because they always have cash on their side of the trade.”
Elaborating on this, he said: “We have securities and potentially securities on the other side, which presents some challenges, and makes our business a little bit more complicated.”
“Meanwhile, mutual funds represent 47 percent of all inventory and that 47 percent equates to about 18 percent of online available balance—if that is the availability.”
“Therefore, we believe that there is something there that it is not quite right, potentially this is because of the restrictions placed on funds.”
Reflecting on almost a decade to the day that RBS announced its colossal share fall, Dyson commented: “Banks need to be adequately funded and they need to have the right level of equity.”
He added that there is a desire within “EU 26” to have a more broadly market-based economy.
In regards to the Securities Financing Transactions Regulation (SFTR), technical standards are currently between the European Securities and Markets Authority (ESMA) and the European Commission.
Dyson explained that if the Commission got their way, there would be a small revision to the Markets in Financial Instruments Directive and, although unlikely, Dyson added that the Commission could start the whole process again.
Looking at the positives of SFTR, Dyson highlighted that it is forcing the industry to shine a light on certain aspects that some often shy away from, such as legal entity identifiers.
“This is forcing us to the table of revision and re-thinking, it is the Commission's job to make markets safer and more resilient. We are stepping up.”
Discussing the new pledge collateral master agreement, Dyson said: “The new pledge collateral master agreement provides a framework in the market for people to look at an alternative to previous transfer arrangements. It is important that construct works, this needs to be ensured.”
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