ISLA Post Trade: Key drivers of the securities lending market
08 November 2024 UK
Image: ISLA
The lines between repo and securities lending are continuing to blur, according to the panellists at the International Securities Lending Association’s (ISLA) 14th Annual Post Trade Conference in London.
In a panel discussion called ‘Key business, trading, and product drivers impacting our markets’, representatives from both the borrowing and lending sides discussed emerging investment strategies, the increasing focus on operational resilience, as well as the evolving regulatory landscape of securities finance.
All panellists agreed that repo and securities lending are becoming more interconnected, with clients asking for cross-market capabilities from service providers.
However, this was not the only substantial change they highlighted in the debate.
“One of the most relevant and impactful changes in our industry over the last few years has been the shift away from over a decade of very low or zero interest environment to a period of higher interest rates,” said Simon Waddington, chief operating officer at ISLA.
“Moreover, those interest rates are moving at various speeds in various markets. This type of volatility and uncertainty is typically very positive for the fixed income side of our market in terms of generating demand, and that's probably one of the factors in why government bond returns are continuing to climb.”
On that note, Jethro Hancock, head of funding markets sales at Lloyds, added: “You could spend days, if not weeks, seeing interest rates not moving. But we are now in an environment where every major central bank across the world is in play for rate changes, which creates a lot more dynamism in the market.”
In addition, only a week ago, the new Labour government of the UK introduced its autumn budget, raising taxes by £40 billion.
Hancock noted that the volatility in the gilt market due to the new budget had less of an impact compared to previous events, as clients were well-positioned to handle interest rate changes.
“A further development is businesses looking to finance broader fixed income,” he added, “so rather than just looking at their gilt portfolio, they may look at covered and corporate bonds.”
Moving on from politics, one panellist said that we are now at the point where central clearing will finally take off in Europe, with benefits outweighing some of the start-up costs and operation terms.
With an audience poll highlighting cyber security as the number one disruptive threat for 2025, the panel stressed the importance of looking at resilience not only in systems but also in key processes and procedures.
Specifically, the speakers highlighted efforts to improve data aggregation, automation, and operational efficiency.
One of them added that cybersecurity is first and foremost in everyone’s thoughts, as businesses are under significant scrutiny from regulators, which has also led to the business slowing down.
The discussion concluded with predictions for 2025.
While Hancock predicts the financial world will see more cross-currency opportunities and the potential impact of geopolitical shocks on interest rates, others anticipate a general expansion of capabilities and a shift towards more bespoke solutions for individual client needs.
In terms of technological developments, Thomas Maskrey, securities lending trader at Vanguard, highlighted AI as an “incredibly useful tool” for automating routine tasks, which will allow people to focus on more important and complex jobs.
In a panel discussion called ‘Key business, trading, and product drivers impacting our markets’, representatives from both the borrowing and lending sides discussed emerging investment strategies, the increasing focus on operational resilience, as well as the evolving regulatory landscape of securities finance.
All panellists agreed that repo and securities lending are becoming more interconnected, with clients asking for cross-market capabilities from service providers.
However, this was not the only substantial change they highlighted in the debate.
“One of the most relevant and impactful changes in our industry over the last few years has been the shift away from over a decade of very low or zero interest environment to a period of higher interest rates,” said Simon Waddington, chief operating officer at ISLA.
“Moreover, those interest rates are moving at various speeds in various markets. This type of volatility and uncertainty is typically very positive for the fixed income side of our market in terms of generating demand, and that's probably one of the factors in why government bond returns are continuing to climb.”
On that note, Jethro Hancock, head of funding markets sales at Lloyds, added: “You could spend days, if not weeks, seeing interest rates not moving. But we are now in an environment where every major central bank across the world is in play for rate changes, which creates a lot more dynamism in the market.”
In addition, only a week ago, the new Labour government of the UK introduced its autumn budget, raising taxes by £40 billion.
Hancock noted that the volatility in the gilt market due to the new budget had less of an impact compared to previous events, as clients were well-positioned to handle interest rate changes.
“A further development is businesses looking to finance broader fixed income,” he added, “so rather than just looking at their gilt portfolio, they may look at covered and corporate bonds.”
Moving on from politics, one panellist said that we are now at the point where central clearing will finally take off in Europe, with benefits outweighing some of the start-up costs and operation terms.
With an audience poll highlighting cyber security as the number one disruptive threat for 2025, the panel stressed the importance of looking at resilience not only in systems but also in key processes and procedures.
Specifically, the speakers highlighted efforts to improve data aggregation, automation, and operational efficiency.
One of them added that cybersecurity is first and foremost in everyone’s thoughts, as businesses are under significant scrutiny from regulators, which has also led to the business slowing down.
The discussion concluded with predictions for 2025.
While Hancock predicts the financial world will see more cross-currency opportunities and the potential impact of geopolitical shocks on interest rates, others anticipate a general expansion of capabilities and a shift towards more bespoke solutions for individual client needs.
In terms of technological developments, Thomas Maskrey, securities lending trader at Vanguard, highlighted AI as an “incredibly useful tool” for automating routine tasks, which will allow people to focus on more important and complex jobs.
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