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ISLA Blog – Reflections of the CEO

The last two weeks of January have seen the market fully back to business as well as the start of this year’s conference season after the end of year hiatus.

SFTR is a subject that will come to dominate much of what we do this year, the past two weeks being no exception.  In addition to the ongoing and detailed analysis of the final technical standards, we have also begun a series of outreach meetings with various industry stakeholders. They have included a number of discussions with our agent lender community, with the objective to better align our work with their particular challenges around the implementation of the regulation. In addition, we have also spoken directly to the SFTR working group at the RMA to share ideas and experiences as they begin to think about how many of their out of scope lenders will be affected by the legislation.

Our extensive work on SFTR is part of a renewed focus on our regulatory business. where the recent arrival of Adrian Dale has been a significant and welcomed addition to our team. As we look towards the rest of the year, we will be putting greater emphasis on our technical working groups that allow member firms to share ideas and common issues whilst acting as a key platform for the development of industry best practice. CSDR in particular will demand that the industry looks at itself first to ensure that we, wherever possible, review operational practices and procedures that potentially add to the risk of failed trades or buy-ins. The logical outcome of the work of these groups is the development and implementation of some standards.  Regular communication of our continuing efforts and progress, notably to our members, will become a greater focus over the coming weeks and months, and as we migrate over to the new ISLA website.

I spent the last few days at the Deutsche Borse Group GFF Summit in Luxembourg. Despite the inclement weather, it was great to see so many repo and securities lending market participants in attendance. On Tuesday 29th, I was honoured to be invited to speak to an audience of Central Banks and Sovereign Wealth Funds as part of a closed-door session. As I was talking to this group, I was reminded how strategically important this community is to our industry. Many of the institutions present were active market participants, policy makers as well as liquidity providers. As we look past Brexit and whatever it may look like in the longer term, I discussed with this group the important role that they will have in determining the future direction of key initiatives such as the Capital Markets Union and the broader sustainability agenda.

Back at the main conference on Wednesday 30th, I was struck by a pivotal discussion on the imminent arrival of the uncleared margin requirements in 2020. During this discussion, the panel felt that the quantum of additional collateral needed by the market could be considerable. This raises important questions for securities lending markets, who may be the logical source of much of the additional collateral that will be needed. A panel later in the day that looked at High Quality Liquid Assets (HQLA) and their role within the liquidity value chain, also highlighted the role that securities lending plays in the mobilisation of HQLA. During this session, some 30 percent of delegates said that over the next two years the demand for HQLA will significantly increase. This provided an interesting link to the discussion I had the day before with the Central Bank and SWF group, who are the source of many of these assets. If we think about securities lending as no more than an exchange of one form of liquidity for another, it is clear that as we think more broadly, the role of securities lending in supporting the needs of the market and its relevant stakeholders is perhaps more important today than it has ever been.

Finally, in respect of our own annual securities lending and collateral management conference in Madrid this June, preparations are well underway.  Delighted that for the second consecutive year, we will be holding a closed-door breakfast briefing for our beneficial owner delegates, and that the sessions and speaker profiles under consideration will undoubtedly bring something new to this year’s agenda.

Andrew Dyson, CEO

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