Markit backs ETFs as collateral
29 July 2015 London
Image: Shutterstock
Markit has launched a new initiative, ETF collateral lists, to encourage wider acceptance of exchange traded funds (ETFs) as securities lending collateral.
The lists filter ETFs and highlights those that track assets in short supply on the collateral market. They pick out fixed-income and equity ETFs that track liquid indexes in developed markets, and hide any subscale funds and those that have a market value deviating more than 1 percent from the value of assets held.
Using Markit’s ETP Analytics and Encyclopedia solutions, the lists can source more that $516 billion in ETFs that track assets meeting widely-accepted collateral rules.
Currently, according to a Markit report, many money market participants don’t accept exchange-traded products (ETPs) because of a lack of standardisation in of the criteria and a lack of transparency in the market, plus a lengthy management process for risk departments and triparty agents.
At Markit’s London Securities Finance forum, 43.9 percent of attendees said they do not accept ETPs as collateral, and 12.2 percent said they would like to, but cannot. Only 31.7 percent answered with a straight ‘yes’, and the other 12.2 percent said they do accept ETPs as collateral “on very few occasions”.
According to Markit, acceptance of ETFs as an asset class is increasing; aggregate assets under management managed by about 5,000 funds reached $3 trillion for the first time earlier this year, due to generally strong inflows and markets. However, this has not translated in to acceptance in collateral management, especially in Europe.
Markit developed the solution with industry participants including ETF issuers, securities lending desks and dealers, in order to address the discrepancy.
Currently, the majority of assets that meet the criteria of the lists are listed in North America, but the rules can also be applied to European investors, with $75 billion in assets that meet the criteria identified in Europe.
More that $516 billion in those ETFs identified track assets that are readily accepted as collateral, and the majority of these, making up $480 billion of the assets identified, are equity products.
According to the Markit report, the value of ETF assets in lending programmes has remained steady for the last 18 months, at around $140 billion. Greater acceptance of ETFs within the wider industry could lead to more ETF assets becoming available through securities lending programmes.
The lists filter ETFs and highlights those that track assets in short supply on the collateral market. They pick out fixed-income and equity ETFs that track liquid indexes in developed markets, and hide any subscale funds and those that have a market value deviating more than 1 percent from the value of assets held.
Using Markit’s ETP Analytics and Encyclopedia solutions, the lists can source more that $516 billion in ETFs that track assets meeting widely-accepted collateral rules.
Currently, according to a Markit report, many money market participants don’t accept exchange-traded products (ETPs) because of a lack of standardisation in of the criteria and a lack of transparency in the market, plus a lengthy management process for risk departments and triparty agents.
At Markit’s London Securities Finance forum, 43.9 percent of attendees said they do not accept ETPs as collateral, and 12.2 percent said they would like to, but cannot. Only 31.7 percent answered with a straight ‘yes’, and the other 12.2 percent said they do accept ETPs as collateral “on very few occasions”.
According to Markit, acceptance of ETFs as an asset class is increasing; aggregate assets under management managed by about 5,000 funds reached $3 trillion for the first time earlier this year, due to generally strong inflows and markets. However, this has not translated in to acceptance in collateral management, especially in Europe.
Markit developed the solution with industry participants including ETF issuers, securities lending desks and dealers, in order to address the discrepancy.
Currently, the majority of assets that meet the criteria of the lists are listed in North America, but the rules can also be applied to European investors, with $75 billion in assets that meet the criteria identified in Europe.
More that $516 billion in those ETFs identified track assets that are readily accepted as collateral, and the majority of these, making up $480 billion of the assets identified, are equity products.
According to the Markit report, the value of ETF assets in lending programmes has remained steady for the last 18 months, at around $140 billion. Greater acceptance of ETFs within the wider industry could lead to more ETF assets becoming available through securities lending programmes.
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