NN IP: ESG principles can make a difference in securities lending
12 April 2019 The Hague
Image: Shutterstock
Securities lending is essential for market efficiency and can expose issues with fraudulent business practices, according to Xavier Bouthors, senior portfolio manager at NN Investment Partners (NN IP).
In a blog post, NN IP explained that the incorporation of sustainability principles in securities lending programmes has accelerated in recent years, as more stringent requirements in terms of regulation and transparency have led to a significant increase in the involvement of lenders.
It also noted that the company is committed to integrating ESG principles in its securities lending programme.
NN IP said: “By participating in securities lending in a responsible way, we believe that we contribute to better governance and oversight across the financial system.”
On the subject of short selling, Martin Aasly, senior portfolio manager at NN Investment Partners, said that a common perception of securities lending is that it facilitates shorting, and that shorting is bad because it undermines the value of long-only portfolios.
He said: “However, the ability to borrow and lend financial assets is crucial to well-functioning financial markets; this fact is well established and documented.”
Aasly also noted that securities lending is “essential for market efficiency, as it provides liquidity by exchanging assets (efficient trade settlement, financing, trading volume). It also leads to fairer pricing by reducing trading costs (tightening the bid/ask spread)”.
Meanwhile, Aasly suggested that in recent years, multiple markets have introduced securities lending and short selling in order to increase liquidity.
He said: “One of the inclusion criteria for MSCI’s developed market indices is that short selling should be possible.”
Aasly noted that even the European Central Bank has launched its own securities lending programme and several Eurosystem central banks are making their holdings available for securities lending.
In a blog post, NN IP explained that the incorporation of sustainability principles in securities lending programmes has accelerated in recent years, as more stringent requirements in terms of regulation and transparency have led to a significant increase in the involvement of lenders.
It also noted that the company is committed to integrating ESG principles in its securities lending programme.
NN IP said: “By participating in securities lending in a responsible way, we believe that we contribute to better governance and oversight across the financial system.”
On the subject of short selling, Martin Aasly, senior portfolio manager at NN Investment Partners, said that a common perception of securities lending is that it facilitates shorting, and that shorting is bad because it undermines the value of long-only portfolios.
He said: “However, the ability to borrow and lend financial assets is crucial to well-functioning financial markets; this fact is well established and documented.”
Aasly also noted that securities lending is “essential for market efficiency, as it provides liquidity by exchanging assets (efficient trade settlement, financing, trading volume). It also leads to fairer pricing by reducing trading costs (tightening the bid/ask spread)”.
Meanwhile, Aasly suggested that in recent years, multiple markets have introduced securities lending and short selling in order to increase liquidity.
He said: “One of the inclusion criteria for MSCI’s developed market indices is that short selling should be possible.”
Aasly noted that even the European Central Bank has launched its own securities lending programme and several Eurosystem central banks are making their holdings available for securities lending.
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
