Fail to prepare, prepare to fail
24 June 2014
The newly rebranded ISLA conference saw a range of topics on the agenda, from the collateral conundrum to the practical implications of regulatory change
Image: Shutterstock
The debates at the 2014 International Securities Lending Association (ISLA) meeting in Berlin, now known as the Securities Finance and Collateral Management Conference, were spread across panel discussions, speeches and roundtables, with the opinions of the audience being broadcast throughout via electronic voting and Q&A sections.
The overarching theme of the conference was one of preparation and how it is the key component to success. This was summed up by the closing keynote speaker, former referee and financial advisor Pierluigi Collina, who highlighted the parallels between making decisions in the financial world and on the biggest stage in sport—the FIFA World Cup.
While, as ever, issues such as Basel III, collateral and liquidity played a large part in proceedings, other more specific opportunities and obstacles were singled out during the panels.
According to one of the main panel debates at the conference, the job of fostering recovery and resolution in the securities market is not finished, with a great deal of work to be done by industry players themselves.
The panelists commented that, although measures such as the European Market Infrastructure Regulation (EMIR) are starting to affect the industry, improvements still need to be made to the regulatory framework itself.
Transparency was singled out by the panel as being integral to the process of assessing how markets work, particularly in securities finance transactions.
Panellists spoke of a forensic approach to the analysis of balance sheets coming from some of the big European institutions, which could lead the wider market to follow suit.
Clearing was also raised as having the potential to make markets safer, though this is not yet the case as far as the panel or the audience were concerned.
A shortage of collateral in the future, though not deemed as a possibility by 59 percent of the audience, was highlighted as a real threat. One of the panellists commented: “For us to not have a shortage we have to take this very seriously. We need to go out there and invest in infrastructure in our organisations to bring collateral onto one platform. If we do not do this, I am convinced that this could become a very real problem.”
In one of the opening roundtable discussions, Russia and Brazil were highlighted as key emerging markets by a panel of industry experts.
There is just over $100 million worth of securities on loan in Russia, with 23 names currently being lent, according the panel. The market in Brazil is more advanced still, with $1.7 trillion out on loan, as well as 200 names being lent.
The panel revealed that Russia’s market is a concentrated one, with 60 percent of its market capitalisation made up of top names.
Fifty new laws and a five-year plan have been key to kick starting Moscow’s rise as an international financial centre, which came about as part of drastic reforms over the past two years.
Other changes have been the introduction of T+2 settlement, the establishment of a central securities depository and moves to develop a ‘mega-regulator’.
This development has pushed Russia to number three worldwide in terms of foreign direct investment, with a total of $94 billion reached in 2013.
Brazil’s BM&F Bovespa is currently remodelling the country’s securities lending service through several improvements that are set to make web trading available, increase transparency and simplify operational procedure.
Standard & Poor’s ratings recently ranked Brazil’s counterparty credit rating at BBB+, with an issuer rating of A-2. Moody’s position Brazil at A3 as a global scale and Brazilian local currency issuer.
The repo market is still strong, according to one of the later panels, with a large proportion of the market shifting from unsecured to secured models. The audience were less optimistic, with 50 percent of them anticipating repo rates to decrease, rather than increase or stay the same.
Overall during the conference, the mood remained one of determined optimism. One of the panelists commented: “We believe that this business is the bedrock of everything that happens in financial markets. In some way, shape or form we need to figure out how to preserve it. I think it is going to become a little more mature and look a little different than it did 20 years ago—but it is still going to exist.”
“The market has to become flexible, and that flexibility will definitely be tested in the coming years. At the end of the day, if we keep our minds open to what potentially exists out there, we will be able to navigate through it.”
The overarching theme of the conference was one of preparation and how it is the key component to success. This was summed up by the closing keynote speaker, former referee and financial advisor Pierluigi Collina, who highlighted the parallels between making decisions in the financial world and on the biggest stage in sport—the FIFA World Cup.
While, as ever, issues such as Basel III, collateral and liquidity played a large part in proceedings, other more specific opportunities and obstacles were singled out during the panels.
According to one of the main panel debates at the conference, the job of fostering recovery and resolution in the securities market is not finished, with a great deal of work to be done by industry players themselves.
The panelists commented that, although measures such as the European Market Infrastructure Regulation (EMIR) are starting to affect the industry, improvements still need to be made to the regulatory framework itself.
Transparency was singled out by the panel as being integral to the process of assessing how markets work, particularly in securities finance transactions.
Panellists spoke of a forensic approach to the analysis of balance sheets coming from some of the big European institutions, which could lead the wider market to follow suit.
Clearing was also raised as having the potential to make markets safer, though this is not yet the case as far as the panel or the audience were concerned.
A shortage of collateral in the future, though not deemed as a possibility by 59 percent of the audience, was highlighted as a real threat. One of the panellists commented: “For us to not have a shortage we have to take this very seriously. We need to go out there and invest in infrastructure in our organisations to bring collateral onto one platform. If we do not do this, I am convinced that this could become a very real problem.”
In one of the opening roundtable discussions, Russia and Brazil were highlighted as key emerging markets by a panel of industry experts.
There is just over $100 million worth of securities on loan in Russia, with 23 names currently being lent, according the panel. The market in Brazil is more advanced still, with $1.7 trillion out on loan, as well as 200 names being lent.
The panel revealed that Russia’s market is a concentrated one, with 60 percent of its market capitalisation made up of top names.
Fifty new laws and a five-year plan have been key to kick starting Moscow’s rise as an international financial centre, which came about as part of drastic reforms over the past two years.
Other changes have been the introduction of T+2 settlement, the establishment of a central securities depository and moves to develop a ‘mega-regulator’.
This development has pushed Russia to number three worldwide in terms of foreign direct investment, with a total of $94 billion reached in 2013.
Brazil’s BM&F Bovespa is currently remodelling the country’s securities lending service through several improvements that are set to make web trading available, increase transparency and simplify operational procedure.
Standard & Poor’s ratings recently ranked Brazil’s counterparty credit rating at BBB+, with an issuer rating of A-2. Moody’s position Brazil at A3 as a global scale and Brazilian local currency issuer.
The repo market is still strong, according to one of the later panels, with a large proportion of the market shifting from unsecured to secured models. The audience were less optimistic, with 50 percent of them anticipating repo rates to decrease, rather than increase or stay the same.
Overall during the conference, the mood remained one of determined optimism. One of the panelists commented: “We believe that this business is the bedrock of everything that happens in financial markets. In some way, shape or form we need to figure out how to preserve it. I think it is going to become a little more mature and look a little different than it did 20 years ago—but it is still going to exist.”
“The market has to become flexible, and that flexibility will definitely be tested in the coming years. At the end of the day, if we keep our minds open to what potentially exists out there, we will be able to navigate through it.”
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