By Andrew Dyson, chief executive officer at the International Securities Lending Association (ISLA)
October is a traditionally busy month for our industry and ISLA in terms of conferences and broader membership engagement. We have already outlined the key talking points and agenda highlights from our 10th Annual Post Trade Conference at the beginning of the month in our last blog. Many themes and ideas coming from the Post Trade Conference as well as several other events I have had the opportunity to participate in over the past few week’s have resonated with many of the themes that were discussed at ISLA’s annual European conference in June of this year.
Immediately after our Post Trade, we raised the ISLA tent in Munich on October 4 where we had the opportunity to talk to a range of member firms and key industry stakeholders about their views on the current intensive regulatory implementation agenda and also what the future might look like in a post SFTR and CSDR implementation world. The meeting in Munich highlighted many common threads from earlier discussions around the market’s readiness for SFTR including how institutions are thinking about questions such as LEI’s for issue and how important it is to recognise the potential impact on liquidity if collateral securities become ineligible for no other reason than if they don’t have the required LEI. More broadly, I was struck at how buy-side firms in the region are engaging at a very granular level to ensure that they are ready for the mandatory reporting deadlines. The work that ISLA is leading to provide a consistent interpretation and reporting framework around SFTR, is helping to shape those important decisions within institutions and increase confidence around issues such as interoperability and communication protocols. It was also very encouraging to see clear recognition from the audience showing how the work we are doing on SFTR and CSDR is providing an important springboard for the future of the industry. Our recent joint paper The Future of the Securities Lending Market | An Agenda for Change published in conjunction with Linklaters, sets out a clear agenda for the future which, to an extent starts where SFTR and CSDR finish.
Another theme that is increasingly on the minds of our wider buy-side community, is that of the imminent next waves of Uncleared Margin Rules (UMR). The impact of the latest waves of these new rules, is predominantly being felt by funds and institutional investors directly rather than the earlier implementation phases which were primarily directed at banks and other prudentially regulated entities. This is changing the way institutional investors are thinking about how they manage and use liquidity more broadly with securities lending increasingly seen as a key piece of a wider liquidity and collateral puzzle.
As buy-side firms grapple with these new demands on their risk management infrastructures and liquidity pools the role of securities lending as a liquidity pump for much of these requirements is coming into sharper focus. Set against a backdrop of a changing regulatory landscape and new demands upon collateral, the role of securities lending is evolving from a simple source of incremental income to a primary part of a firm wide liquidity management process.
After the cooler autumn winds of Munich much of the global industry moved on to the RMA’s 36th Annual Securities Finance and Collateral Management Conference in Florida between October 14-17. I mention specifically that this was the RMA’s 36th event as testament to their pivotal role in helping to shape the industry that we all work in today. I was delighted to be part of the agenda this year as I believe that it is vitally important that industry associations share experiences and ideas for the greater good of our respective member firms. When listening to the various sessions and debates it was increasingly clear to me that the industry globally faces very similar challenges, but they tend to appear in different ways and in varied forms. Discussions at the RMA surrounding opening up liquidity and markets in central and South America, are no different in concept to the work we are doing in Spain and further afield in Saudi Arabia. Once you strip away regional details, we are simply talking about developing broader and more sustainable capital markets that welcome institutional and retail investors. Securities lending plays a crucial role in linking the aspirations of retail investors with governments and policy makers by supporting market liquidity, creating effective price discovery and offering efficient entry and exits points into and out of investment markets.
When looking back over the past few weeks it is clear that the role of securities lending is increasingly being seen through different lenses. Its role in supporting broader market liquidity will only become more important in Europe in a post Brexit world where liquidity pools could become marooned on either side of the Brexit divide. Buy-side firms are also looking at lending in a different way today as they think about how to comply with other pieces of legislation, most notably the rolling impact of the UMR’s and what this means for the management of their internal liquidity requirements.
This piece was first published on ISLA's website on October 23.