Page 6 - ISLA SL Report March 2019
P. 6

Executive Summary

      For the six-month period to 31st December 2018, the following are the key
      highlights from our review of the global securities lending markets

      �   For the six months to 31st December 2018, global   �   In the run up to the year-end, we saw the expected   �   The provision of securities lending liquidity from   �   Falling equity market values that drive tri-
         on-loan  balances  rose  by  circa  4%,  increasing  to   reduction in on-loan balances as banks repositioned   Sovereign Wealth Funds (SWFs) continues to be a   party valuations were also a factor that led to a
         €2.2 trillion (up from €2.1 trillion 6 months earlier).   trading books to comply with binding regulatory   prominent feature of our markets.   proportional  increase  in the use of government
                                                     constraints. As in prior years, there was a clear                                                 bond collateral.
      �   Reported securities made available by institutional   preference to recall or return cash collateralized   �   As  at  31st  December,  SWFs  made  up  33%  of
         lenders within lending programmes showed a   trades  particularly  in  fixed  income  markets.  Here,   available inventory and 39% of loans globally across   �   36%   of   government   bonds   held   as
         marginal  fall  from  €17.4  trillion  to  €16.6  trillion.   borrowers looked to maintain HQLA driven trades   governtment bonds.            collateral  within  tri-party  were  classified  as
         However, it should be noted that during this   which are predominantly against non-cash collateral.                                           Asian securities.
         period  the  S&P500  fell  by  some  8%.  With  over                                            �   Reported  non-cash  collateral  increased  to  €1.4
         66%  of  all  securities  being  made  available  for   �   In equity securities lending markets, balances fell   trillion  and  represented  67%  of  all  lending   �   As central  banks end quantitative easing, this will
         lending  being  classified  as  equities,  the  reported   away ahead of the 31st December as hedge funds   business globally.                have  potentially  significant  impacts  on  market
         fall in overall lendable appears to have been   and other alternative investment managers (AIM)                                               liquidity  where alternative  sources of supply could
         driven by falling asset valuations rather than   sought to deleverage and manage downside risk in   �   In  Europe,  we  saw  non-cash  collateral  held  in   be more expensive or restricted.
         assets leaving lending programmes.          the run up to the year-end.                            tri-party  increased  to  circa  €1.4  trillion  from  €1.3
                                                                                                            trillion six months earlier. Within this number, equity   �  Imminent  regulatory  changes  around  SFTR
      �   Government  bond  lending  represented  circa  45%   �   Increased volatility in equity cash markets in the   collateral fell from 46% to 41% of the reported total.   and CSDR could change market behavior
         of all securities on-loan globally highlighting its   fourth quarter also pushed AIMs to reduce market                                        in the near to medium term. This could
         continued importance to overall secondary market   exposure. Securities lending balances fell accordingly,   �   Anecdotal evidence from our members suggests   lead to lending liquidity leaving the market
         liquidity and the role of securities lending in the   highlighting the unique perspective that our markets   that dealers were short of equity collateral in the run   for cost reasons or being diverted away
         context of HQLA mobilization.               provide into the behavior of other sectors.            up to the year end.                        from Europe.

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