ISLA releases 8th Securities Lending Market Report
02 March 2018 London
Image: Shutterstock
ISLA has released the 8th edition of its Securities Lending Market Report.
The report, released on 2 March, gives data on global markets overview and trends, and global government bond markets from July to December 2017.
It also gives specific comment on Brexit, the second Markets in Financial Instruments Directive (MiFID II) and Securities Financing Transactions Regulation (SFTR) as the industry works towards its implementation in 2019.
ISLA said that after MiFID II was implemented in January, “the market itself continued to function without any noticeable impact on market liquidity or trading volumes”.
Writing for the report, Jo Hide, trade repository SME at REGIS-TR, said: “This time next year, we expect firms will be progressing well through their SFTR transaction reporting projects and gearing up to start sending the first records to Trade Repositories (TRs) across Europe.”
“As with over-the-counter (OTC) derivatives before, this transaction reporting is a new endeavour in the securities financing and repo world, with new terminology, new workflows and, inevitably,
new concerns arising as the reporting start date approaches.”
Commenting further on SFTR, Hide cited ISO 20022 as a “great benefit” in preparation for the regulation.
“So much of the data validation is contained within the format definition—the successful creation of a file already guarantees the quality of a great deal of the data you’re submitting, before it even reaches the TRs,” Hide added.
Hide concludes there are three main things that the industry can do to help make a success of SFTR.
These include ensuring the unique transaction identifiers have not already been used for
another trade and validating certain data against reference data lists—for example, legal entity identifier, currency codes, venue codes.
Hide also suggested that firms should try to prevent illogical workflows—preventing a modification from being reported against a trade which has already matured as records which pass all the checks will be submitted to the TR.
Hide added that those who do not will need to “correct the errors and re-submit the affected
records within the reporting deadline”.
ISLA found that the value of on-loan balances globally increased steadily over the second half of 2017 to just over €1.9 trillion as at the end of 31st December 2017.
The association said: “At the same time, we also observed a gradual uptick in the reported value of global lendable supply of assets, which moved to just over €16 trillion at the year end.”
Non-cash collateral held in triparty services increased to €1.3 trillion, from €1.2 trillion reported
at the end of June 2017.
The proportion of equities held in tri-party remained constant at 48 percent of all securities, with much of the incremental growth in triparty balances coming from government bond collateral.
ISLA also noticed a drift towards the use of non-cash collateral since it started tracking this metric in 2016.
In terms of exchange traded funds (ETFs), over the last 2 years alone, Andrew Jamieson, global head of ETF product at Citigroup Global market, also writing for ISLA, said: “We have witnessed a near $1 trillion switch from traditional actively managed mutual funds into passive ETFs.”
Jamieson said that as a consequence, global assets under management has risen sharply to $5 trillion globally.
He stated that “what is often not appreciated is that ETFs are largely an institutional tool
outside of North America availability and on-loan balances within the securities lending marketplace have risen steadily over the last few years and continues to do so”.
The full report is available here.
The report, released on 2 March, gives data on global markets overview and trends, and global government bond markets from July to December 2017.
It also gives specific comment on Brexit, the second Markets in Financial Instruments Directive (MiFID II) and Securities Financing Transactions Regulation (SFTR) as the industry works towards its implementation in 2019.
ISLA said that after MiFID II was implemented in January, “the market itself continued to function without any noticeable impact on market liquidity or trading volumes”.
Writing for the report, Jo Hide, trade repository SME at REGIS-TR, said: “This time next year, we expect firms will be progressing well through their SFTR transaction reporting projects and gearing up to start sending the first records to Trade Repositories (TRs) across Europe.”
“As with over-the-counter (OTC) derivatives before, this transaction reporting is a new endeavour in the securities financing and repo world, with new terminology, new workflows and, inevitably,
new concerns arising as the reporting start date approaches.”
Commenting further on SFTR, Hide cited ISO 20022 as a “great benefit” in preparation for the regulation.
“So much of the data validation is contained within the format definition—the successful creation of a file already guarantees the quality of a great deal of the data you’re submitting, before it even reaches the TRs,” Hide added.
Hide concludes there are three main things that the industry can do to help make a success of SFTR.
These include ensuring the unique transaction identifiers have not already been used for
another trade and validating certain data against reference data lists—for example, legal entity identifier, currency codes, venue codes.
Hide also suggested that firms should try to prevent illogical workflows—preventing a modification from being reported against a trade which has already matured as records which pass all the checks will be submitted to the TR.
Hide added that those who do not will need to “correct the errors and re-submit the affected
records within the reporting deadline”.
ISLA found that the value of on-loan balances globally increased steadily over the second half of 2017 to just over €1.9 trillion as at the end of 31st December 2017.
The association said: “At the same time, we also observed a gradual uptick in the reported value of global lendable supply of assets, which moved to just over €16 trillion at the year end.”
Non-cash collateral held in triparty services increased to €1.3 trillion, from €1.2 trillion reported
at the end of June 2017.
The proportion of equities held in tri-party remained constant at 48 percent of all securities, with much of the incremental growth in triparty balances coming from government bond collateral.
ISLA also noticed a drift towards the use of non-cash collateral since it started tracking this metric in 2016.
In terms of exchange traded funds (ETFs), over the last 2 years alone, Andrew Jamieson, global head of ETF product at Citigroup Global market, also writing for ISLA, said: “We have witnessed a near $1 trillion switch from traditional actively managed mutual funds into passive ETFs.”
Jamieson said that as a consequence, global assets under management has risen sharply to $5 trillion globally.
He stated that “what is often not appreciated is that ETFs are largely an institutional tool
outside of North America availability and on-loan balances within the securities lending marketplace have risen steadily over the last few years and continues to do so”.
The full report is available here.
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