In order to make sense of our objectives as a firm, it is necessary to consider some of the developments that have impacted securities lending over the last few years.
Banks’ constraints in terms of accounting and regulatory ratios have allowed a certain dynamic to be created in recent years. The recurring need for high quality securities as a result of the LCR has made it possible to bring in structures allowing for greater added value.
However, the low interest rate environment has added to the pressure to generate additional returns. On repo, banks are limiting their supply of paper – and therefore liquidity - and significantly downgrading their levels with the objective of managing these scarce resources more efficiently.
NSFR, which enters into force on July 2021 should lead to a few movements in the market, although not to the same extent as the LCR.
In the securities lending space, the coronavirus crisis has highlighted the need to offer clients a better experience, both in terms of reporting and information on what we are doing with their securities.
If we look at trends over the first half of the year in the equity lending segment, it is clear that demand for ETFs continues to increase. With the transfer of investment from active to passive management, ETFs are increasingly liquid and becoming a mainstream asset class for use as collateral.
We have also seen the return of ‘special situations’ which ...