The primary source of global securities finance news and analysis ISLA Conference Special

The art of client service

Industry experts at DTCC discuss
their SFTR solution

European panel discussion | Reflections from ISLA’s CEO Andy Dyson | Risks of inaction with ESG

IS YOUR SFTR SOLUTION

MISSING A PIECE OF THE PUZZLE?
w
w

ESMA delivers SFTR Level III guidance

The European Securities and Markets Authority the logic that underpins Table 4 is different transactions (SFTs), which means that the
(ESMA) has delivered its Securities Financing from the other tables, and will not be used for collateral securities posted or received
Transactions Regulation (SFTR) Level III reconciliation as this information cannot be from other transactions are out of scope
document, which sets out key explanatory linked to individual transactions.” and that entities should not report their
details regarding the information to be own assets.
submitted by trade repositories (TRs) to ESMA. “Instead, non-cash collateral re-use, cash
collateral reinvestment and funding sources This also means that the components of
According to ESMA, such reporting enables shall be reported as aggregates at reporting the re-use formula should not be reported
the authority to conduct consistent entity level.” separately to ESMA, the paper highlighted.
supervision of TRs by aligning content and
format of reports to ESMA’s supervision and Collateral re-use shall be reported using Instead, reporting entities should only provide
its risk assessment processes. the formula agreed in the Financial Stability the estimate that results from the application
Board (FSB) framework and included in the of the formula at ISIN level.
Reporting of collateral re-use and RTS, ESMA notes in the paper. ESMA also
cash reinvestment has been especially clarified that cash reinvestment is reported In terms of scope, this means the collateral
problematic. In section six of the paper, which as-is and not subject to the FSB formula. received, eligible for re-use captures
deals with the tables of fields to be reported securities received as collateral in reverse
under SFTR, ESMA cited: “As highlighted in ESMA outlined that the reporting obligation repos and BSB, and securities borrowed in
the regulatory technical standards (RTS), only applies to securities financing securities borrowing transaction.

www.securitieslendingtimes.com 3
Inside SLT

Malik’s Memo DTCC’s SFTR Solution

Market FinReg’s Seb Malik discusses ESMA’s Experts at DTCC discuss the expansion of
keenly-awaited guidance on SFTR reporting its GTR functionality to accommodate the
and shares its key points reporting of SFT
page 18 page 20

Publisher: Justin Lawson

[email protected]
+44 (0) 208 075 0929
ISLA CEO European Panel
Editor: Becky Butcher ISLA’s Andy Dyson says over the last 12 months, Market participants discuss how the European
[email protected] the demands and expectations of association securities finance market is adapting and
+44 (0) 208 075 0927 members have changed considerably adjusting to the current changing environment
page 24 page 28
Reporter: Maddie Saghir
[email protected]
+44 (0) 208 075 0925

Reporter: Jenna Lomax

[email protected]
+44 (0) 208 075 0924

Creative Director: Steven Lafferty

Office Manager: Chelsea Bowles

+44 (0) 208 075 0930 ESG Insight Industry Drivers
While many investors are incorporating ESG David Lewis of FIS explains that before
Published by Black Knight Media Ltd into securities lending programmes the industry moving onto AI and machine learning, the
Copyright © 2019 All rights reserved must keep the risks of inaction in sharp focus industry needs to strengthen its foundations
page 40 page 44

4 Securities Lending Times

Your securities
financing partners
ABN AMRO UK Awards - 2018
Top Borrower in EMEA
Group 2 - ISF Survey Awards
Best Bank in the Netherlands
Euromoney Awards for Excellence

www.abnamro.co.uk/GlobalMarkets

Banking for better, for generations to come

Inside SLT

CCP Insight Data Analysis

Deutsche Börse Group’s Mathias Graulich discusses the outlook for Sam Pierson of IHS Markit discusses the state of equity lending
the Lending CCP revenues so far in 2019
page 48
page 50

Latest Events Industry Appointments

Pick up your copy of Securities Lending Times at these The latest industry moves at GLMX, Elixium, DeltaOne and
industry events many more
page 56
page 58

The Great White North

The strength and stability of the country’s securities lending market was reinforced at the Canadian Securities Lending Association’s 9th Annual
Conference, and panellists suggested positive change is happening in Canada

page 52

6 Securities Lending Times

 ... to the next level.

Let Securities Lending take you...

Make idle assets work harder with Securities Lending. Behind the scenes,
we generate low-risk additional revenues on your securities. The only impact
on your business is enhanced performance figures, and today, every basis
point counts.
We offer tailor-made agency, principal and lending solutions with remote
www.munier-bbn.com

access to suit your precise needs.

CACEIS, your comprehensive asset servicing partner.

Contact:
[email protected]

www.caceis.com
News Round-Up

Barclays, Goldman Sachs and J.P.

Morgan sign up for DTCC’s GTR

Barclays, Goldman Sachs and J.P. Morgan

will use DTCC’s global trade repository (GTR)
service in order to meet their regulatory
obligations under the Securities Financing
Transactions Regulation (SFTR).

DTCC’s GTR solution supports all product

types to be reported under SFTR, including repo
and reverse repo, securities and commodities
lending and borrowing, sell/buy-back, buy/sell-
back and margin lending and borrowing.

DTCC’s GTR now supports the European Market

Infrastructure Regulation, the Financial Market
Infrastructure Act and SFTR regulations from
a single global platform through its London-
big xyt to provide wider services based registered trade repository.

Liquidnet Europe has broadened its The collaboration will also allow Liquidnet Val Wotton, managing director, product
implementation of big xyt’s Liquidity to compare quality, liquidity, spreads and development and strategy, repository
Cockpit analytics platform. costs to ensure maximum efficiency. and derivatives services and collateral
management at DTCC, said: “DTCC is
As an independent provider of data Mark Montgomery, head of strategy committed to serving clients, and creating
analytics solutions, big xyt administers and business development at big xyt, opportunities to protect the stability and
a variety of products and services to commented: “We are delighted to be integrity of the global financial system–
Liquidnet, including the cross-check of able to provide Liquidnet with the ability such as readying the industry for regulatory
market volumes and monitoring of market to interrogate and assess a consolidated mandates, including SFTR.”
information. view of their market position.”
He added: “Barclays, Goldman Sachs and
Furthermore, Liquidnet will be able “Recognising the benefit of outsourced J.P. Morgan are valued clients, and we’re
to “capture, normalise, collate, and independent, complex data analytics delighted to be working with them in the
store” trade data of regulated markets, has freed up additional internal securities financing arena to achieve the
multilateral trading facilities and resources to concentrate on client transparency and risk mitigation that the
systematic internalisers. focused initiatives.” G20 intended.”

A range of apps that will transform

your securities finance business
2016 and 2017
Best Software Provider

8 Securities Lending Times

 40 OF
YEARS
YEARS
AGENCY
OF AGENCY
SECURITIES LENDING
SECURITIES LENDING
News Round-Up

OCC sees securities lending up in May

OCC’s securities lending central counterparty

(CCP) activity was up 0.3 percent in new loans
from May 2018 with 119,589 transactions
last month.

Year-to-date stock loan activity decreased

1.7 percent from 2018 with 567,184 new loan
transactions in 2019. The average daily loan
value at OCC in May was $73.8 billion.

Total cleared contract volume in May reached

464,971,407 contracts, a 13.1 percent increase
compared to last May, and the highest total
volume for May in OCC’s history.

Deutsche Börse’s regulatory reporting hub to start OCC’s year-to-date average daily cleared
SFTR service contract volume is 19,609,615, down 8.0 percent
compared to 2018’s record-breaking pace.
Deutsche Börse’s regulatory reporting hub The hub will ensure SFTR compliance for
is adding a new solution for the Securities Eurex Clearing’s cleared securities lending Futures cleared by OCC reached 9,029,622
Financing Transactions Regulation (SFTR) and repo business. contracts in May, up 20.1 percent from May
to its suite of regulatory reporting services. 2018. OCC’s year-to-date average daily cleared
The hub also enables Eurex Clearing futures volume is 310,478 contracts, 33.3
The solution will help clients manage SFTR members to enrich their SFTR reporting percent lower than 2018.
reporting challenges, improve reporting with Eurex Repo and Eurex Clearing data
data quality and reporting efficiency. (counterparty, transaction and principal Overall exchange-listed options volume
collateral, CCP margin). This enrichment reached 455,941,785 contracts in May, up 12.9
The hub’s SFTR solution will cover service covers all SFTR-reportable percent from 403.7 million in 2018.
data collection, validation, enrichment, transactions that are concluded on Eurex
submission report construction and trade Repo and cleared by Eurex Clearing as CCPs. Equity options volume reached a total of 405.8
repository integration with REGIS-TR. million contracts, a 10.8 percent increase from
This will reduce SFTR implementation May 2018.
Clients will be able to report any type of costs for clearing participants and
securities financing transactions (SFTs) increases reporting efficiency by using This includes cleared exchange traded funds
through the platform. consistent data. options volume of 175.7 million contracts

Your Specialists in Securities Finance

[email protected]

10 Securities Lending Times

Track,
analyze,
execute.
Know your risk and rewards.
Independent securities lending
performance and risk evaluation services
to take your business to next level.
‒ Unparalleled benchmarking tools for your securities
lending performance
‒ Evaluation of revenue and risk
‒ Leverage extensive historic data covering $21 trillion
of global securities
‒ Independent management reporting of results versus
framework and strategic objectives
‒ Research and thought leadership

Learn more @ markit.com/SecuritiesFinance

The global leader in securities finance solutions

170462879-MT-0817

Trusted. Innovative. Independent.

Contact us
E [email protected]

americas europe, middle east and africa asia pacific

T +1 212 931 4910 T +44 20 7260 2301 T +65 6922 4220
News Round-Up

last month, a 16.4 percent increase According to Euroclear, this automation of fund extremely pleased to welcome Arbuthnot
compared to the May 2018 volume of 150.9 transaction settlement will allow Arbuthnot Latham Latham to our service.”
million contracts. to offer end-to-end automation for the settlement
of fund units and applicable cash movements. He added: “The end to end automation of their
Index options volume was up 33.2 percent fund transactions will result in a reduction of
with 50 million contracts in May, with a Euroclear noted that from the placing of risk and costs as well as provide full line of
year-to-date average daily volume of 1.9 a funds order to the settlement, transfer, sight of their settlement obligations which will
million contracts. reconciliation and corporate action processing also improve liquidity.”
of the asset, the service makes a fund held in
Arbuthnot Latham moves to the UK as easy to administer as any other EUI- Investment banking revenues decline
Euroclear’s investment fund service eligible instrument.
Investment banking revenues have declined in
Arbuthnot Latham has moved to Euroclear’s Martin Williams, head of investment Q1 2019, according to a new report by Coalition.
UK & Ireland’s (EUI) CREST investment management operations at Arbuthnot Latham,
fund service and will now benefit from said: “The move to Euroclear UK and Ireland’s The trend, indicated in Coalition’s Interactive
full automation of settlement for its UK investment fund service is another milestone Brokers Index, was mainly driven by the
investment funds. in our drive to reduce operational risk, increase absence of large one-off events, subdued
controls and move to automate processes, we client activity in Fixed Income Clearing
Arbuthnot Latham, part of the Arbuthnot are pleased to have worked in partnership with Corporation (FICC) and weak issuance activity
Banking Group, is a merchant bank offering EUI to help achieve these goals.” in the Investment Banking Division.
investment management and wealth planning
services to high net worth private individuals Stephan Pouyat, global head of capital markets The report found that in equities, the impact of
and commercial clients. and funds, Euroclear, commented: “We are normalisation in derivatives coupled with lower

EXPERTS IN:
SECURITIES LENDING
ACHIEVE GREATER
RISK MANAGEMENT
CLIENT SERVICING
ALL OF THE ABOVE

To learn more, visit northerntrust.com/securitieslending

ASSET SERVICING \ ASSET MANAGEMENT \ WEALTH MANAGEMENT

DIRECTED TO PROFESSIONAL CLIENTS ONLY. NOT INTENDED FOR RETAIL CLIENTS. FOR ASIA-PACIFIC MARKETS, THIS MATERIAL IS DIRECTED TO
INSTITUTIONAL INVESTORS, EXPERT INVESTORS AND PROFESSIONAL INVESTORS ONLY AND SHOULD NOT BE RELIED UPON BY RETAIL INVESTORS.

© 2016 Northern Trust Corporation, 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the United States. Products and services provided by subsidiaries of Northern Trust Corporation may
vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market offices, visit northerntrust.com/disclosures. Issued by Northern Trust Global Services Limited.

12 Securities Lending Times

 News Round-Up

revenues prime services and cash was partially and APAC, while the Americas performed with us and recognises the value of our broker-
offset by improvement in futures and options. relatively better. neutral solutions.”

Equities underperformed due to the absence of Citco partners with S3 for trade He added: “The Citco-S3 alliance, along
one-off results in derivatives and weaker results cost analytics with our distribution via Bloomberg, Nasdaq
in prime services and, to a lower degree, cash. and Reuters, expands the reach of our
Asset servicing solutions provider Citco technology and data to every player type and
Prime services were negatively impacted by Group (Citco) has partnered with S3 client segment.”
client deleveraging, lower client activity and a Partners to allow its clients to access S3’s
decline in trading results. BLACKLIGHT’s financing trade cost analytics Albert Bauer, managing director at Citco Fund
tool for trade, margin and collateral exposures Services (US), commented: “Our focus at Citco
Cash equities declined on the back of lower and efficiencies. has always been to provide our clients with the
volumes and margin compression. Regionally, best technologies and services to make their
Asia Pacific (APAC) outperformed relative to BLACKLIGHT leverages data analytics along lives easier.”
Americas and Europe, the Middle East and with technology for better outcomes in the
Africa (EMEA). investment process, risk management, and “This is why we have decided to integrate S3’s
counterparty relationships. market-standard BLACKLIGHT suite of data
The report also indicated that the decline and technology.”
in FICC securitisation was driven by weaker The platform will be rolled out via Citco’s Æxeo
client activity and increased competition. treasury platform. He added: “Our clients have asked for
nuanced analytics which we can now offer via
Cash equities revenues declined due to Bob Sloan, founder of S3 Partners, said: “We BLACKLIGHT with single-sign-on access and
lower volumes across regions led by EMEA are thrilled that Citco has chosen to partner virtually no operational friction.”

Transforming the world of

Securities Finance.
At Stonewain, we understand the importance of being secure and agile, which is why we
created a fully-integrated technology solution 'Spire'. Spire's architecture meticulously integrates
with your organization's IT system, consolidates workflows and cohesively performs with other
proprietary systems.
It's time to give your business the Spire Advantage.

Global Stock Loans and Borrows Collateral Management & Optimization Repo/Financing
Agency Lending Cash Management Regulatory Locates

400 Connell Drive, Suite 5300, Berkeley Heights, New Jersey 07922
[email protected] www.stonewain.com 973-788-1886 973-315-3092

CUT SIZE 180mm x 120mm BLEED SIZE 6.35 mm X 6.35 mm

www.securitieslendingtimes.com 13
News Round-Up

Mixed May results for Eurex Meanwhile, May saw a number of new NSD noted this increase was due to floating
monthly records as over 2.79 million rates linked to the Bank of Russia.
Eurex saw mixed results for May as, despite VSTOXX futures and options plus more
a decrease in total trading volume, there were than 343,000 total return futures contracts In Q1 2019, the total volume of Bank of Russia
increases in repo, equity and equity index were traded. repos reached RUB 192 billion.
derivatives trading.
Additionally, more than 900,000 contracts The total number of clients connected to the
Eurex repo saw an overall increase of 19 were traded during Asian hours with a new CMS was 160.
percent in average outstanding volume in the daily record on 31 May of almost 229,000
repo markets in comparison to May 2018. traded contracts, indicating the success of In Q1 2019, the number of trades registered
The overall number of traded contracts was Eurex’s trading hours extension. with NSD’s repository grew to 3.1 million
173.2 million compared to 184 million in May compared with 2.8 million in Q1 2018.
2018, a decrease of 6 percent. NSD CMS treasury repos value grew
by nearly five times in a year The value of the registered transactions was
Increases of 3 and 8 percent respectively for 20 percent more than in the same period of
traded contracts in European equity index The value of federal treasury repos conducted 2018—RUB 120.8 trillion (RUB 100.6 trillion in
derivatives and European equity derivatives via the collateral management system (CMS) Q1 2018).
contrasted with traded contracts in European of Russia’s National Settlement Depository
interest rates derivatives. (NSD) amounted to RUB 5.3 trillion in Q1 2019, At the end of 2018, NSD implemented
4.9 times more than in Q1 2018. integration with Moscow Exchange’s over-the-
According to Eurex, these stood at 50.6 million, counter system and in March 2019, the NSD
a decline of 25 percent year-on-year (67.4 The average repo maturity increased from became the first central securities depository
million in May 2018). three to seven days. to sign up for SWIFT’s gpi service.

FIS APEX
SECURITIES FINANCE AND
COLLATERAL MANAGEMENT

• Automate, innovate and optimize

with proven solutions.
• Reduce your total cost of ownership
with managed services.
• Uncover market insights with global
intraday market data and analysis.

Empower and optimize your business

FIND OUT MORE AT: FISGLOBAL.COM

CONTACT US: [email protected]

©2019 FIS and/or its subsidiaries. All Rights Reserved.

14 Securities Lending Times

 Securities lending can be an
important source of return and
Get the Most a key part of overall portfolio
and risk management strategies.

From Your We offer individualized service,

technology and a commitment

Lending to transparency to help you

achieve your goals.

Program

For informational purposes only. Securities lending services

are provided through State Street Global Markets, the marketing
name and a registered trademark of State Street Corporation,
used for its financial markets business and that of its affiliates.
Products and services may not be available in all jurisdictions.
©2019 State Street Corporation.

statestreet.com/securitiesfinance
2397543.1.1A.AM.
News Round-Up

The gpi is a cross-border payments service Additionally, AMF suggested that the The regulator also calls for a review of
that provides real-time payments tracking architecture of asset management regulation reporting requirements to avoid duplication
and transparency on bank fees and foreign be rethought. and inconsistencies.
exchange rates.
During the review of the Alternative Investment AMF commented: “The AMF puts forward
AMF to improve European rulebook Fund Managers Directive, the drafting of pragmatic proposals to promote greater
with new proposals a legislation defining a clearer and more convergence in the supervision of actors
harmonised common set of rules for asset and developing a framework for day-to-
The French financial markets regulator, managers could be considered. day relations between supervisors in a
Autorité des marchés financiers (AMF), is European landscape that will be profoundly
making concrete proposals to improve the AMF also affirms its support for simplifying transformed by the UK exit from the
quality of the European rulebook and its ability the Packaged Retail and Insurance-based union and the coexistence of several
to evolve. Investment Products regulation to better financial centres.”
inform investors.
AMF will contribute to the 2020-2024
agenda following the European elections and As well as this, AMF supports a targeted Have a news story we should
Parliament and the European Commission’s review of the second Markets in Financial cover?
new term of office. Instruments Directive.
Contact us via:
It has proposed a series of adjustments to This is to adjust certain provisions in
existing texts to make them easier to read, the light of experience and to take into [email protected]
simplify and, if necessary, correct provisions account the effects of the UK’s exit from
that prove inadequate. the EU.

Your ambition
knows no boundaries.
Neither does our expertise.

Wherever your ambition takes you, BMO Capital Markets can help.
Ranked as a Top 10 borrower in the Global, Americas, and
Asia-Pacific categories,* you can count on our global access,
insights and expertise to help you reach your most ambitious goals.

* 2018 Global Investor International Securities Finance (ISF) Survey.

BMO Capital Markets is a trade name used by BMO Financial Group for the wholesale banking businesses of Bank of Montreal, BMO Harris Bank N.A. (member FDIC), Bank of Montreal Ireland p.l.c,
and Bank of Montreal (China) Co. Ltd and the institutional broker dealer businesses of BMO Capital Markets Corp. (Member FINRA and SIPC) in the U.S., BMO Nesbitt Burns Inc. (Member Investment
Industry Regulatory Organization of Canada and Member Canadian Investor Protection Fund) in Canada and Asia and BMO Capital Markets Limited (authorised and regulated by the Financial
Conduct Authority) in Europe and Australia. “BMO Capital Markets” is a trademark of Bank of Montreal, used under license.
®
Registered trademark of Bank of Montreal in the United States, Canada and elsewhere. ™ Trademark of Bank of Montreal in the United States and Canada.

16 Securities Lending Times

 THE GLOBAL
TRADE
REPOSITORY
(GTR)

THE SECURITIES FINANCING & DERIVATIVES

EXPERTS IN TRADE REPORTING
Ask us about our SFTR solution.

DTCC.COM/SFTR
[email protected]
Malik’s Memo

ESMA provides SFTR guidance

On 27 May, the European Securities and Markets Authority (ESMA) date exceeds 180 days; or (ii) those SFTs have an open maturity and
delivered its keenly-awaited guidance on SFTR transaction reporting remain outstanding 180 days after that date. These must be reported
in the form of a consultation paper. The so-called level III guidance by 190 days. Given the phased-in start date, this posed challenges
comprises a melange of ESMA’s opinions and questions to the concerning unique transaction identifier (UTI) generation and
industry. This document is the first substantive new information dissemination with counterparties—especially those who only report
concerning the Securities Financing Transactions Regulation (SFTR) later. Industry bodies were at one point gravitating to ignoring the
since ESMA delivered its final report more than two years ago in March aforementioned legislation and just reporting backloaded SFTs on the
2017. We at Market FinReg sacrificed our bank holiday Monday to go-live date. I had consistently cautioned against this, and ESMA has
analyse the document and the associated Excel sheet of validation confirmed our view that the legislation must be adhered to concerning
rules and produced a briefing note for the industry by next morning. I timing, but that the previous lifecycle events can be ignored.
would like to share with you the salient points from the new guidance.
Phased-in reporting
Collateral re-use
ESMA states that non-banking entities (that are only due to report
Confusion reigned on how to report cash and collateral reuse. The three-plus months after initial go-live) are free to report in advance
Financial Stability Board (FSB) formula seemed unfit for purpose to of their go-live date: ‘should the non-banking counterparties find
report cash collateral reinvestment: it easier.’ Central counterparties were already intending to do so—
donning my legal cap, there is a strong argument that ESMA has no
authority to overrule legislation in this way, but such a view would risk
lapsing into pedantry.

General or specific collateral

Concerning the highlighted assets element—for cash, this would imply
adding the bank/entity’s entire cash holdings thereby producing a Following questions on how to consider the two, ESMA engages by
meaningless number. During a trip to Frankfurt, an individual from a proposing two approaches. In summary, approach A is to default
German industry group told me that they had informed their regulator repos and BSBs to general collateral (GC) and for securities lending
(BaFin) that, absent guidance, they would be reporting 100 percent on specific collateral. Approach B is to restrict GC to GC automated
all occasions. Guidance now states that the above formula is only for trading systems. ESMA solicits industry opinion.
securities and not cash. For cash, one merely reports the amount of
cash and the rate at which it was reinvested. Specifically, counterparty Amendments
A reports its own cash reinvestment of €100,000 at 1.5 percent rate in
the repo market by completing: Field 4.11 (Reinvestment rate): 1.5; ESMA consults on whether amendment reports should contain all
Field 4.12 (Type of re-invested cash investment): real estate and private fields afresh, or merely the updated field(s)—the latter option would
markets; and 100000 for re-invested cash amount in field 4.13. Regarding reduce payload.
securities collateral reuse, the formula applies and, unfortunately, the
highlighted problematic assets own element remains, which would imply Other issues
a bank/entity would need to track its entire inventory of that particular
International Securities Identification Number (ISIN). Market FinReg will ESMA provides guidance on the identification of the central securities
be highlighting this problem in our response to ESMA’s consultation. depository (CSD) participant is provided including that, “counterparties
should not report the legal entity identifier (LEI) of the CSD in which
Buy-sell back they are either direct or indirect participants”. What constitutes an SFT
being concluded in the course of operation of a branch is clarified;
ESMA responded to industry feedback concerning buy-sell backs ESMA acknowledges problems of fungibility of repos in order to
(BSB). ESMA appears to have fundamentally misunderstood the avail compressed position reporting as well as obtaining LEIs for the
product, and hence field validation changes have been introduced to jurisdiction of the issuer.
make amends, notwithstanding continuing issues.
It is impossible to provide detailed comment on a 179-page document
Backloading here. For those interested in our fuller views, do visit our blog: https://
www.marketfinreg.com/blog/
Recall, to capture pre-existing systemic risk, SFTR requires reporting
pre-existing SFTs that (i) the remaining maturity of those SFTs on that I encourage all industry participants to respond to ESMA’s consultation.

18 Securities Lending Times

DTCC’s SFTR Solution

The art of client service

Industry experts at DTCC discuss the expansion of its GTR functionality to
accommodate the reporting of SFT as required by Europe’s SFTR and how
it will support clients who are gearing up to comply with the regulation
Market participants doing business in the EU face an additional In response to SFTR, GTR is offering an end-to-end client service
regulatory regime starting in 2020, one that will challenge their programme that includes all the features of its standard global client
operational capacity to report large volumes of securities financing support system along with new enhancements and specific testing
transactions (SFT) to trade repositories (TRs). While many of these tools designed for SFT reporting.
firms are experienced in reporting over-the-counter (OTC) derivatives
trades to trade repositories (TRs) under the European Market GTR’s partnership model
Infrastructure Regulation (EMIR) regime, the EU’s Securities Financing
Transactions Regulation (SFTR) will place additional pressure on Over the years GTR, in partnership with its user community has
standard operating procedures and impose new compliance burdens in amassed unparalleled expertise working with a wide array of market
a business area previously untouched by such mandates. participants. This experience allowed GTR to build out its functionality
to accommodate SFT, making GTR a one-stop shop for clients’
DTCC’s Global Trade Repository service (GTR) is the premier transaction reporting needs. GTR’s multi-channel client service
transaction reporting and disclosure solution for clients and operation provides comprehensive support throughout clients’ trade
regulators worldwide. Launched in 2012 in response to the G20 reporting lifecycle, from onboarding and connectivity through to
recommendations for risk mitigation in the OTC derivatives market testing, go-live and post-reporting data analysis. Enabled by its global
following the 2008 global financial crisis, GTR is the largest trade footprint, GTR provides follow-the-sun support servicing clients in
repository for OTC derivatives, processing some 40 million open Europe, Asia, North America and Canada. Its email and call centres
positions a week and more than 11 billion messages for 5,250 connect to a case management system to create a feedback loop with
clients in multiple jurisdictions around the world. clients, relationship managers and client service staff.

20 Securities Lending Times

 Over the years GTR, in partnership with its user
community, has amassed unparalleled expertise
working with a wide array of market participants

SFTR’s unique challenges client community represented on our board and steering committees
drives the voice of the client right to the heart of our business both
Compliance with SFTR, as with any new mandate, is generating in terms of product delivery and continuous improvements to our
anxiety among firms that will be required to comply with it. Not only support services.”
does SFTR cover a broader swath of market participants than EMIR’s
derivatives rules, but the securities finance industry also has a heavier GTR has also invested heavily in new client service tools over the
lift in preparing for SFTR compliance, particularly in the areas of data last three years, “putting a variety of knowledge, testing and training
availability and daily workflows. For instance, SFTR requires up to 153 modules at clients’ fingertips,” Cappelletti said.
fields for data reporting, compared to 129 fields under EMIR.

Maria Dwyer, managing director of solutions client services and

business operations at DTCC, said: “Firms under the SFTR mandate
are asking questions such as, ’do we have the right systems in place
for organising our trade data and transmitting it to a TR efficiently?
How do we know if our trade data is robust enough to meet the
standards of the new rules?’”

Dwyer explained: “GTR has responded to these concerns by

developing an end-to-end support service that starts by helping these
firms understand the regulation and their obligations, then gets them
connected to our platform and provides value-add with analytical
resources that can enhance the quality of their data.”

She added: “GTR’s success is driven by our collaborative relationships

with clients, regulators and industry partners. We’re committed
to minimising the client build-out effort and facilitating SFTR
implementation to the greatest extent possible.”

New support tools and practices

As the demands of GTR’s user base continue growing in response

to the ongoing release of new and revised technical standards by
regulators, GTR keeps improving its client support model.

Luca Cappelletti, global head of client service for DTCC’s repository

and derivatives services group, explained that the “increasing volume
of messages we process and number of clients we support has
generated a large number of user inquiries over time, which funnel
into GTR’s client support teams.”

Cappelletti said: “Since 2012 we have evolved from a reactive

helpdesk to deliver a more proactive user experience. Having our

www.securitieslendingtimes.com 21
DTCC’s SFTR Solution

These new tools will be easily accessible thanks to a redesigned user ago. With EMIR we could see patterns of repeated inquiries, so we
portal GTR began rolling out in 2017 to improve the client experience. built into our new platform hands-on learning resources that guide
Users now have direct electronic access to the data stored in the users to the answers of common questions.”
repository maximising user control over the content, number, and
frequency of reports generated. Besides its self-service capabilities, the new portal offers a
simplified, more-intuitive interface along with features that can
Dwyer explained: “The portal redesign grew out of lessons we learned smoothly integrate other DTCC solutions into clients’ trade life cycle-
from the go-live of EMIR derivatives reporting in Europe several years management workflow.

Our UAT environment will be live from August

2019, which along with this structured approach to
testing, will help avoid a last-minute free-for-all
Features include an advanced dashboard that provides a snapshot of
submission, trade and reconciliation data; analytical tools that enable
performance benchmarking by country; and a feature-rich search
interface that expedites data queries and customisation options
to filter and sort query results. The portal’s enhanced landing page
shows a summary of user data from the previous reporting day.

Dwyer said: “Clients coming on board for SFTR reporting will realise all
these benefits. I’d also encourage existing GTR clients who haven’t yet
switched to the new portal.”

From onboarding to testing

Onboarding to a new service is often cumbersome for clients,

Cappelletti noted, but GTR’s SFTR offering delivers a “slick, web-
based, digital onboarding process. New self-service features will
streamline onboarding and eliminate a lot of the headaches that
typically characterise this process”.

Once onboarded, firms will need to test their internal builds and
identify where their data quality requires improvement, to ensure
operational conformance with SFTR. To give clients a long lead time to
prepare for the new mandate, which will be phased in by type of entity
starting in April 2020, GTR worked with users and vendors to develop Among the improvements is the move to knowledge-centred
an innovative pre-user acceptance testing (UAT) simulator. Available support, with solutions to commonly asked client questions
now and at no additional cost, the simulator allows clients to submit organised by topic to help GTR respond quickly and resolve
test messages and determine whether they will be “acknowledged” or issues consistently.
“negative acknowledged” by GTR’s trade message validation process.
For negative acknowledged messages, the simulator flags why What’s more, GTR is integrating the Agile methodology into its client
the message has not been acknowledged so firms can adjust their support system.
messaging specifications accordingly—and proceed to UAT later this
year with confidence. Cappelletti said: “Our software developers in the Asia-Pacific region
employed Agile in building out our new portal there. Now we’re
For SFTR, GTR has structured its UAT phases in order to support extending Agile’s squad-based collaborative practices beyond IT
both vendor and client testing. It will be making downloadable applications to the delivery of client service. It’s a groundbreaking use
testing scripts available to clients. of Agile that will laser-focus us on streamlining our responsiveness at
every step of our client interactions.”
Cappelletti explained: “Furthermore, our UAT environment will be
live from August 2019, which along with this structured approach Clients are taking note of GTR’s client support performance. In
to testing will help avoid a last-minute free-for-all that can occur DTCC’s latest Brand Equity Survey, conducted in December and
with new regulations as go-live approaches.” January, the company’s brand attribute ratings registered the
largest increase in Europe, thanks to positive feedback from GTR
Continuous improvement users. Furthermore, GTR clients overall reported significantly
increased engagement with the business and showed greatly
“Besides our platform, testing tools and training modules, something improved perceptions over the past five years in areas like
else sets GTR apart from the competition: we continuously adapt proactivity, reliability, expertise and client focus.
our client support to respond to the needs users bring to our door,”
Dwyer said. Dwyer commented: “We’re extremely proud of the level of support
we offer our clients. This enhanced client support model, along with
She added: “We assimilate best practices by participating in the DTCC’s ongoing commitment to mitigate risk, automate processing,
Consortium for Service Innovation and the incremental investments enhance transparency and drive down costs in transaction reporting
we’ve been making across support are reaching an apex to coincide enable us to deliver a compelling SFT offering to clients in Europe and
with our SFTR launch.” beyond over the coming years.”

www.securitieslendingtimes.com 23
ISLA CEO

Increasingly complex landscape

ISLA’s Andy Dyson says over the last 12 months, the demands and
expectations of association members have changed considerably
settlements and mandatory buy-in regimes will force us to change
Maddie Saghir reports
our behaviours, particularly in the post-trade world. Notwithstanding
What is ISLA working on at the moment? the very real focus on the imminent arrival of these important pieces
of regulation, we are also thinking more broadly about the future of
Since we gathered as an industry in Lisbon last year, the demands our industry, including the development of greater and more efficient
and expectations being placed upon our members and various settlement and communications protocols through common
stakeholders have changed considerably. This has led to a notable domain models (CDM). In many ways, CDM’s are the immediate
investment in both people and infrastructure to support the manifestation of the future in our world today. While we recognise the
industry across a number of different disciplines. Not unexpectedly, importance of developing robust and scalable reporting and trading
the Securities Financing Transaction Regulation (SFTR) figures infrastructures, we are also looking at how we can develop access
prominently in much of what we do, and we now have a dedicated to new markets and different ways of unlocking securities lending
team that is working through the broad array of implementation liquidity. In particular, we have begun looking at how we may add to
issues with our members between now and Q2 2020 when the first the debate around the development of securities lending capabilities
reports are due. While SFTR does dominate much of our technical in the Middle East. The arrival of Saudi Arabia with global indices
work, we are also looking at the implications of Central Securities such as MSCI and FTSE will drive expectations from global investors
Depositories Regulation (CSDR) and how the arrival of fines for failed who will want to trade efficiently in and out of these markets.

24 Securities Lending Times

Global Securities Finance and
Collateral Management Solutions

Optimize funding and collateral decisions

Reduce counterparty and operational risks
Enable efficient and high-growth operations
Meet regulatory and market requirements
Communications
Technology
Data and Analytics

broadridge.com

© 2018 Broadridge Financial Solutions, Inc., Broadridge and the Broadridge logo are
registered trademarks of Broadridge Financial Solutions, Inc.
ISLA CEO

What trends are you seeing in the securities lending space? leave until tomorrow, particularly if it requires capital investment
in the business. Rightly or wrongly, the business around the
In the post-crisis world, securities lending has become an increasingly legacy Agent Lender Disclosure (ALD) process is seen by many as
complex business that is driven by many binding constraints on both being out of step with the current regulatory landscape especially
sides of the transaction that can change over time. While this complexity in respect of trading transparency and new client approvals. SFTR
creates challenges, it also offers opportunities to those that understand is driving institutions to review many aspects of their business
this changing landscape as well as those who can capitalise on them. One including how the current ALD process will sit alongside or even
of the clear messages we have seen from talking to market participants instead of SFTR data flows.
from all elements of the value chain is that creativity and flexibility are key
drivers for success in the industry today. Over time, I would expect most firms to want to dispense with
the legacy ALD trading information as SFTR data flows will be
What are you expecting to be the big talking points at more timely and accurate through the adoption of broad industry
the ISLA conference in Madrid? standards such as legal entity identifiers.

We have a varied and diverse agenda in Madrid this year, with What will ISLA be working on in the next 12 months?
many new speakers and topics not normally associated with this
event. In addition to our normal mix of technical updates and As we look out 12 months, there are some clear elements of what
interactive panel sessions, I would highlight the elements of the we are doing today that will still be with us this time next year.
agenda that are devoted to the changing role of technology, and in SFTR has a feeling of inevitability about it, although I would hope
particular the tokenisation of assets and the development of smart to see the first reports produced by this time next year. As we get
contracts. We are also very fortunate to have Steven Maijoor, the closer to go live with SFTR, CSDR will feature more prominently as
chair of the European Securities and Markets Authority, with us firms think about how they minimise the more extreme elements
again this year. His perspectives on where we are today as an of this regime.
industry and what we might expect to see next will be a ‘must see’
for all delegates. ISLA has a key role to play around CSDR and working to define better
more efficient post-trade operating standards. I would also like to
Is the industry becoming more collaborative as a result think that the work we are doing today to better understand how
of SFTR? CDM’s can be applied to our markets, will have begun to change the
way we look at future technology and settlement infrastructures.
This is a very interesting question. We all live in a world where most,
if not all, of our member’s firms compete with each other. Having I also anticipate that we will be increasingly more active in looking
said that, there is also a growing recognition and appreciation that to unlock assets in jurisdictions including the Middle East, where
associations such as ISLA can do certain things on a collaborative I expect to see greater momentum behind the development of a
basis. Much of our work in the legal space has for many years allowed more broadly based capital markets ecosystem that will attract
member firms to leverage the ability that ISLA has to obtain netting international institutional investors.
enforceability opinions at a single price point, thereby reducing unit
costs and providing legal certainty. More recently, SFTR has brought Finally, we should not forget that we still have to be ready for the
with it many common issues and problems where a common UK leaving the EU at some point and the arrival of a very different
collaborative approach has allowed many minds and experiences parliamentary structure in Brussels later this year. SLT
to identify specific issues. As many firms essentially have the
same set of problems around SFTR and to an extent CSDR, it also
makes economic sense to pool resources and share costs. Much
of the work ISLA is currently doing around SFTR is driven by those
combined objectives of knowledge sharing and the mutualisation of
development and implementation costs.

You recently said that SFTR is forcing the industry

to shine a light on often long forgotten elements of
its trading and settlement infrastructures, could you
explain this further?
Andy Dyson

There is no doubt that many of the systems and market practices in

securities lending have been with us in some form for many years,
ISLA
CEO

and there is always a propensity to put off today what you can

26 Securities Lending Times

BEYOND GLOBAL SECURITIES FINANCING

More than just

securities financing,
together we can create
the right solution

Voted most innovative Global Equity Borrower*,

Natixis offers high quality solutions thanks to its
in-depth knowledge of the Securities Financing
market.
Collaboration Financing Solutions
*Group 2 - Global Market Lenders and Borrowers were split into
2 groups based on the volume traded

CREATIVE FINANCIAL SOLUTIONS

THAT GO BEYOND

Contact: Ian Beattie, Head of Client Development Europe & UK

Tel: +33 1 58 55 83 08 - [email protected]
www.cib.natixis.com
Adapting to change
Panel participants
Ross Bowman
Senior relationship manager, securities lending
BNP Paribas

Ben Challice
Global head of trading services
J.P. Morgan

Mark Jones
Head of securities lending, EMEA
Northern Trust

Simon Nottage
Head of product development, EMEA
State Street Securities Finance

Simon Tomlinson
Head of trading agency securities finance, EMEA
and Americas
BNY Mellon Markets
Leading market participants discuss how the European securities finance
market is adapting and adjusting to the current changing environment
How is the European securities finance market remains a core part of our offering and we expect to see balances
currently faring and what trends are you seeing? increase steadily through 2019 and into 2020.

Simon Tomlinson: It’s certainly been a mixed start to the year and Following the inclusion of Saudi Arabia in the MSCI, we’re seeing
follows on from a slower Q4 2018, with revenues down year-on-year. an increase in borrowing enquiries. We welcome the work that the
International Securities Lending Association (ISLA) cross-industry
The European securities finance space is feeling the effects of the working group is doing to help open this potential new lending market.
political stalemate over Brexit and while there was a hope we might
see a second-half jump in demand after a March exit from the EU for On the supply side, we have seen more assets come into lending
the UK, the delay until late October has in all likelihood pushed that programmes across beneficial owner sectors/types and a diverse
back into 2020. This is further compounded by the US and China trade ange of counterparty types. This increase in supply, against a
tensions and the potential knock-on effects that will be felt in Europe. relatively flat borrower demand, poses a challenge for agent lender
on two fronts: seeking the right type of assets to bring into lending
Negative interest rates, general spread compression, lack of specials, pools (along with the right type of collateral flexibility), and developing
a short sale ban in Wirecard, de-leveraging and political tension do solutions to ensure their client base remains relevant and attractive
not make for good reading and these are all playing their part in the to borrowers.
current market conditions.
Finally, while environmental, social and governance (ESG)-focused
Mark Jones: It’s been a challenging start to the year following strong investing has been on beneficial owners’ agendas for some time, we
performance from multiple asset classes last year. Continued focus are seeing renewed interest especially across recalls for voting and
on regulatory capital with borrowers maintaining investigations into demand for wider ESG-compliant collateral sets. We expect ESG to
methods which encourage efficiencies. Borrowers are seeking access increase in prominence and are working with our clients and the wider
to capital efficient beneficial owners, or those with less challenging industry to provide ESG-enabled solutions.
netting opinions, so-called ‘segregated lending’ or ‘smart buckets’.
Simon Nottage: The landscape is changing as a response to increased
The recent addition of pledge, as opposed to the traditional title transfer, regulation and developments in technology. Trends including the adoption
also highlights the strong desire of our counterparts to seek capital of technology, combined with increased levels of transparency, have
efficiencies. Specifically, collateral switches continue to be sought in fixed resulted in higher levels of engagement across market participants looking
income markets as banks look to satisfy liquidity ratios, though a narrower for integrated financing solutions. Overall, there has been a reduction in
basis swap has led to a reduction in returns more recently. In equity yield enhancement trading, which when combined with tightening spreads,
markets, we have seen a further shift in demand from hedge funds with has ultimately led to increased volumes and activity. The move to non cash
a quant bias. These strategies typically employee low latency execution collateral and collateral optimisation has continued to develop and will
and require the highest level of trade automation. Northern Trust has remain a core component of the securities finance ecosystem.
benefitted in this respect given our commitment to automated trading.
Ross Bowman: Although often viewed as slow to adopt change,
Ben Challice: Last year was a watermark year in many respects, but the securities lending industry has demonstrated its resilience to
the European securities finance market in 2019 remains robust. On the all manner of events over the years and continues to deliver strong
demand side, trends include a further drive towards efficient borrowing— returns. Last year was a good revenue year for the market, with
borrower defined lending, ‘smart bucketing’—along with greater levels of double-digit revenue percentage increases over 2017.
borrower internalisation. This is translating into demand from borrowers
for more tailored trade structures and increasingly automated solutions, Against a backdrop of low capital market volatility, as seen through the
resulting in more efficient borrowing. We see little sign of this abating. CBOE VIX Index, lendable and on loan balance inventories remained
stable across Q1 2018/19, seeing only a marginal 4 percent drop in
While pledge has been an industry hot topic and key ask from average utilisation across all asset classes.
borrowers for several years, uptake to date has been somewhat
muted. Several factors could be contributing to this, starting with the However, the return to lendable (RTL) over the same period fell by
current business cycle where the absolute binding constraint seems 12 percent as traditional European equity seasonal trading volumes
to be revenues rather than balance sheet or capital. Other contributors reduced and spreads on high-quality liquid assets (HQLA) government
are greater levels of internalisation, use of synthetic structures and bonds fell, impacted by the reduction in demand to finance bank balance
even central counterparties (CCPs). Despite limited use, pledge sheet assets and the termination of the ECB PSPP in December 2018.

www.securitieslendingtimes.com 29
European Panel

This picture was echoed in the hedge fund industry as, although alpha technologies. Participants are developing and integrating automation.
generation on the whole has been positive in Q1 2019, long biased Part of the securities finance strategy is to adopt and leverage
fund strategies have been the success story as global equity indices platforms to improve the pre- and post-trade efficiencies. The
have continued to climb. adoption of new technologies, such as artificial intelligence (AI) and
distributed ledger technologies (DLT), is happening as part of a wider
With the Brexit and US/China trade negotiations still in play and the transformational change at group levels which will feed into securities
potential for broader market volatility and financing costs to increase, finance. This combined approach is necessary to maintain market
it is likely that there will be a positive knock-on impact on securities position and deliver innovative client solutions.
lending revenues.
Jones: The levels of automated trading deployment continue at a pace but
Are you seeing increased automation in Europe’s there is still some way to go. Northern Trust has invested heavily to position
securities lending market? ourselves as a market leader and benefits greatly from frictionless trading.
The aforementioned growth in quantitative-based trading strategies is
Challice: Yes, absolutely. When we talk about automation in securities emphasising this all the more. Borrowers are increasingly focused on
lending, it’s important to think how creating and harnessing automation executing and pricing securities lending transactions with lenders in as
in and across pre-trade and post-trade enables a more seamless end- frictionless a way as possible, as they seek to reduce execution latency
to-end transaction flow and better client experience. and reduce human touch in the trade lifecycle.

The use of tools such as next-generation trading (NGT) has allowed far EquiLend’s NGT is viewed as an important tool to leverage in this
greater connectivity and automation over the last few years. The need regard, as the industry looks at ways to increase efficiencies across
for this connectivity is evident: at an industry level, there are ~$2.2 to global trading desks. Northern Trust’s significant capital investment
$2.3 trillion of on loan balances at any one time, of which 80 percent in the integration of NGT within its proprietary trading platform is
are classified as general collateral (GC), typically below 20 basis points. allowing us to continue to be recognised as a market leader in this
This volume simply can’t be processed manually, and NGT offers an increasingly important part of an agent lenders product offering.
elegant solution. We have approximately 70 percent of all agency trade
flows already automated with further growth expected, driven by fixed The role of new technology such as AI and robotics undoubtedly
income borrowing (particularly government bonds). have a role to play in the future evolution of the industry. At Northern
Trust, we are actively working with these new technologies in order
Automation significantly reduces operational costs and risks, and to identify ways to enrich everything from trading strategies and data
also allows trading teams to focus on more high-value revenue analytics to operational efficiencies.
opportunities and the overall client experience, where technology
and data are vital enablers. The ability to aggregate and analyse large We also believe that blockchain (or DLT) can have a transformative
data sets support better-informed trading decisions, the identification impact on the industry, as has been discussed over recent years. We
of new revenue opportunities aligned with each beneficial owner’s believe this technology has multiple applications and can help deliver
investment mandate, and enhanced performance information. significant benefits, including increased transparency, enhanced risk
management, and operating efficiency. What is interesting is the
Nottage: The environment is developing along with two key themes; increase in the practical application of the technology in various
automating pre- and post-trade processing and the adoption of new markets that are now occurring, there’s a new story on this almost

The European securities finance

space is feeling the effects of the
political stalemate over Brexit

Simon Tomlinson
Head of trading agency securities finance, EMEA and Americas
BNY Mellon Markets

30 Securities Lending Times

 European Panel

every day. Northern Trust already has a track record of integrating from Trading Apps. After a successful multi-year relationship and
this technology into other areas of its business, and we remain the accelerated pace of change taking place in the industry, we felt
focused on exploring opportunities to deploy it across our capital it advantageous to firmly take control of the direction of the product
markets business. positioning us to lead change, quickly being able to adapt the programme
and position us to deliver increased opportunities to our clients.
Bowman: Yes. However, due to the over-the-counter (OTC) and un-
commoditised nature of the securities lending market, automation has We are excited by the potential ahead of us.
largely been confined to back-office reconciliation processes through
the application of technologies offered by companies such as Pirum Ultimately, we are all being asked to do more with less and there is
and DataLend to drive operational efficiency. Triggered, at least initially, only one real way you can do that which is by automating manual
by the broad-based adoption of trading technologies such as DataLend, processes, improving connectivity and creating smart solutions for
NGT, and more recently spurred on by the enhanced connectivity that both clients and counterparties.
will be required under the Securities Financing Transactions Regulation
(SFTR), there is a palpable sense that true innovation within the industry How can technology be leveraged in the
lies just around the corner. More than at any other time in the history of the collateral space?
industry, we have seen an explosion in technology start-ups right across
banking and capital markets businesses, all looking for opportunities Nottage: Technology is a key driver in providing collateral management
to disintermediate the historic chains that have been synonymous and optimisation solutions. The new transparency regimes will
within the securities lending industry, particularly: beneficial owner— make data more readily available and force increased automation to
agent— borrower—hedge fund. With the overwhelming drive by banks improve settlement levels. The application of prudential regulations
to efficiently manage collateral inventory across their businesses, (Basel III) has led to an increase in the use of non-cash collateral and
technologies that help firms reduce the significant capital costs of structures to manage the risk-weighted asset (RWA) usage, such as
doing business and generate enhanced automation across all aspects English law pledge. It is anticipated that the improved market-wide
of the product life-cycle will help drive down fixed costs. Businesses data and digitisation of the operating environments will allow further
that are service providers within these participant chains will need to developments in collateral management with portfolios to be actively
be more nimble than ever, adopting change through a combination of managed across different limits. This will also allow increased
in-house and externally-sourced solutions. correlation and new structures to be added.

Tomlinson: Yes, automation is key to any successful participant in Tomlinson: Technology already plays a huge part in the collateral
this business. This ranges from the basic straight-through processing space, as lenders and borrowers would not be able to manage the
(STP) trading of the low margin, high volume business via a platform complexity of their collateral requirements without it.
like Equilend or directly via our own trading platform up to the use of
AI and machine learning to improve pricing and the way we look to In the near term, the digitisation of collateral schedules and the
distribute our client’s assets. workflow around their agreements will reduce the time to market.
With the mobilisation and optimisation of collateral a key factor for
At BNY Mellon, we have made a major commitment to our securities any borrower, the ability to do that easily across multiple collateral
finance business in terms of technology and infrastructure. For example, boxes becomes a huge differentiator for any tri-party service provider.
in December we purchased the securities lending intellectual property BNY Mellon’s tri-party offering has these capabilities either live or due

Northern Trust has invested heavily

to position ourselves as a market
leader and benefits greatly from
frictionless trading
Mark Jones
Head of securities lending, EMEA
Northern Trust

www.securitieslendingtimes.com 31
European Panel

imminently, and during the course of this year we will see wider use of our As one example, the drive for increasingly sophisticated optimisation
online collateral schedule platform, RULE, which simplifies the schedule by collateral providers cannot be tackled by developing a best-in-class
set up and maintenance, and ECPO, which provides continuous portfolio optimiser as a standalone solution: you need to approach the problem
optimisation across borrowers; various collateral holdings. holistically. Without up-to-date eligibility schedules, exposure calculations
and available inventory, even the best optimiser will be ineffective. To be
Beyond these important developments, the discussion around effective, optimisation needs eligibility schedules to be digitised in order
tokenisation continues and it will be interesting to see how that they can be automatically consumed. When schedules are digitised,
that progresses. the end-to-end workflow to update them can then be industrialised
through user interfaces and application interfaces.
Bowman: Technology will continue to play an increasing role in
supporting securities lending players’ crucial needs for efficient Another example would be asset mobilisation. Industry players and
management of their collateral pool. The integration between Tri-party technology need to combine to reduce friction in the movement of
collateral agents and trading or matching platforms is now offering a assets in order to increase efficiency in liquidity and optimisation. As
full STP post-trade chain for collateral management and a solution to an enabler, a unified global collateral management platform can help
meet SFTR requirements. to quickly mobilise and optimise collateral across regions and legal
entities. More broadly, tokenisation is widely discussed as a possible
Technology should now be leveraged to facilitate the negotiation technological solution that would foster liquidity, asset mobility and
and the day-to-day management of eligibility schedules. But where velocity along with other, as-yet-unknown, benefits.
technology will also need to play a key role is around anticipation
and optimisation of collateral allocation across activities. Simulation How is regulation impacting the industry in Europe?
engines should enable a consolidated view of collateral activity with
associated eligibility terms and selection criteria to be built. This Bowman: In recent years, conversation in the industry has been
should serve to better anticipate needs and make the best use of the dominated by regulation and its impacts. Regulation focused on
collateral to be allocated across all trading relationships. investor protection such as the second Markets in Financial Instruments
Directive (MiFID II) and the European Securities and Markets Authority
New ways to exchange collateral and improve settlement using (ESMA) has driven changes in market practices and financial conduct,
technology such as blockchain will definitely drive us towards new while Basel III regulation has placed additional requirements on banks
capacities, more flexibility and opportunities. to maintain higher levels of capital and liquidity.

Challice: While technology has been an increasing differentiator SFTR and the Central Securities Depositories Regulation (CSDR) are
for collateral management for many years, the speed and demand challenging market infrastructure and practices. The real test for the
for change is increasing and is multi-faceted. As the collateral industry will be how the market copes with the reporting obligations
ecosystem looks to build increasingly automated and sophisticated under SFTR next year.
tools, all actors within the end-to-end collateral flow have different
challenges to solve for. This demands a collaborative approach as Nottage: The new regulatory regimes, such as CSDR and SFTR, are a
one participant cannot create a solution in isolation, and there’s an central focus for market participants and require a significant amount
opportunity for a solution that targets one problem to have much of allocation of both personnel and budget resources. All indications
broader application. from local regulators seem to suggest that the implementation of a

Automation significantly reduces operational

costs and risks, and also allows trading
teams to focus on more high-value
revenue opportunities
Ben Challice
Global head of Trading Services
J.P. Morgan

32 Securities Lending Times

 European Panel

firm’s regulatory solution will be closely scrutinised and penalties will most cases costly to implement, has also brought about a significant
be applied for insufficient adherence. The increasing cost of providing opportunity for those able to quickly adapt.
securities lending may lead to possible market consolidation where
smaller participants may exit due to the cost of compliance, while the For example, in June 2018 we printed our first pledge transaction and
new market level transparency is encouraging new asset owners to saw steady growth in balances which will continue as more lenders
look at participating in a securities finance programme. sign up. In H1 2019 we will be looking to clear our first European SFT
via Eurex and this again will be something that will gain traction as
Jones: SFTR and CSDR dominate the regulatory agenda at present. regulators are keen for this to become more widely utilised. These
We’ve talked about SFTR for a number of years now, and with the developments have come about because of the challenges new
deadline now set, efforts across the industry is intensifying. regulation has placed on businesses and the need to become efficient
in the use of financial resources.
CSDR presents a different set of challenges but could be potentially
just as impactful. The settlement discipline regime that comes into So while regulation has, without doubt, had a significant impact on
force later in 2020 will demand that the industry becomes as efficient the industry, it has also brought opportunity in the form of new trade
as possible in terms of trade matching and settlement if we are to structures and routes to market, with more focus on the efficient use
avoid the fines and mandatory buy-ins that are being introduced. of limited resources.

As a lender, we will need to consider the things we can do to ensure Challice: SFTR is the single biggest shift in the industry on the horizon
our instructions are timely and that any issues are resolved quickly. and, given its scale, could drive consolidation in the securities financing
industry. If that consolidation is combined with effective solutions and
Frequent buy-ins as a result of failing returns would be detrimental offers, it could present a significant opportunity to create a more efficient
to the beneficial owner client base and risk of reduced supply exists market. SFTR, along with CSDR, will also affect the collateral space.
if we get this wrong as an industry. The work ISLA are doing around As significant undertakings for the industry as a whole, the hope and
the best practice is going to be helpful, and it’s interesting that the expectation is that implementing these regulations might drive further
end goal of efficient trade booking and settlement practices will also industry collaboration, data standardisation and technology solutions.
have overlapping benefits for SFTR. Uncleared margin rules segregated initial margin rules are quickly coming
into scope for the buy side in September 2020. Although primarily a
Tomlinson: Regulation is not new and has been an ongoing theme derivatives conversation, providing an end-to-end solution brings together
since 2008. However, it does feel as though 2020 will finally see the a number of core competencies offered by securities services providers:
end of the larger development initiatives such as SFTR and CSDR. custodians providing control accounts, collateral managers agreeing and
exchanging initial margin and securities financing transforming available
Right now you may argue that a significant amount of tech spend and securities into eligible collateral. While none of these services is new,
resource has been focused on meeting these regulatory demands, served collectively they create a solution that is greater than the sum of
and this has limited the discretionary level of spending on developing the parts for institutions adapting to regulatory driven change.
solutions to enhance productivity and revenues.
Across the board, regulation continues to dominate in terms of how
However, you only have to look at how the market has evolved and both borrowers and lenders manage to binding constraints—driving
continues to develop to know that is not the case. Regulation, while in the need to find solutions that optimise collateral structures, such

The increasing cost of

providing securities lending
may lead to possible
market consolidation
Simon Nottage
Head of product development, EMEA
State Street Securities Finance

www.securitieslendingtimes.com 33
European Panel

as pledge, CCP, collateral allocation methodologies and inter- solution was chosen since the connectivity for both reconciliation and the
entity structures. dispersal of data would have been difficult to achieve in isolation.

How is your firm preparing for SFTR? In preparation for the April 2020 ‘go live’, we intend to continue to dedicate
resource to the industry associations in the defining of reporting ‘best
Challice: We are working closely with all affected parties to prepare for practice’, the ongoing collation and refining of loan and collateral data,
SFTR. On the industry side, we’ve engaged with both ISLA and ICMA and look to begin testing as soon as possible as the best way to ensure
to ensure that we are in line with industry best practices for reporting the accuracy of our data and that of our in-scope borrowers.
under SFTR as we work through the roadmap, and are working with
ISLA to respond to the consultation on guidelines for reporting under Jones: We are in the midst of our preparation for SFTR with multiple
articles 4 and 12 of SFTR released by ESMA on 27 May 2019. workstreams active. We are working closely with our vendor and
technology teams on the core system build we need to produce the data
We are partnering with our clients to make sure they are aware of SFTR in the right way, and at the same time analysing our processes across
and the service we will provide to them for reporting, and working with front office and operations to ensure that the data we are producing is
borrower counterparties to ensure they are aware of how we aim to as accurate and complete as possible before it leaves our organisation.
share data with them to support their SFTR reporting obligations.
The key technology components are in an advanced development Through this process, we are definitely seeing that a lot of firms we speak
phase and we expect to begin testing with vendor partners and to are more comfortable with the mechanics of the requirement, and are
counterparties later this year in order to have sufficient time to identify switching focus to less obvious impacts such as how their own long-
and address any issues. We are also beginning to formulate the target established practices fit in with the regulation and what they might need to
operating model that will support the SFTR reporting service. change to get their reporting right. Overall, the industry will benefit from this
exercise and we’ll come out of it understanding the way our counterparts
Tomlinson: BNY Mellon began its SFTR project around two years manage their processes better than ever before. This can only be a good
ago, and over that time we have been an important contributor in the thing for market efficiency, standardisation, and automation.
refining of the regulation, both with the regulator directly and via the
excellent work of the industry associations. We’ve also stepped up our client communication programme to ensure
the lenders on whose behalf we will be reporting are well informed and
As one of the first agent lenders to sign to a vendor solution in the third have the information they need to be comfortable with the progress
quarter of 2017, BNY Mellon is leveraging existing post-trade data and end result of the implementation.
feeds to provide near real-time, legal entity identifier-level transaction
and collateral data, as well as UTI allocation. Bowman: SFTR and MiFID II have driven the shift in demand across
the securities lending market, where financial regulation has materially
As a result, we are already in the early stages of data provision and have the impacted the level of balance sheet capital banks and broker-dealers
ability to reconcile with similarly connected counterparties. Despite having can allocate to borrowing securities. Such regulation has reduced
no direct obligation under SFTR, we fully understand the importance of the demand as the cost to borrow through a securities lending transaction
role that agent lenders will have to play in the provision of assisted/delegated has increased and alternative financial instruments including the use
reporting solutions for their clients and, as importantly, the provision of data of synthetics and swaps have emerged to provide banks with a similar
to in-scope counterparties. This is also why a partnership with a vendor level of desired market exposure but at a reduced balance sheet cost.

SFTR and MiFID II have driven

the shift in demand across the
securities lending market

Ross Bowman
Senior relationship manager, securities lending
BNP Paribas

34 Securities Lending Times

European Panel

At BNP Paribas, we are addressing the needs of our clients who CSDR will change the way we lend, the buffers that are held, and may
are required to report under SFTR. Under a dedicated bank-wide reduce liquidity as lenders ensure they do not create unwanted fail
transversal project, we have partnered with IHS Markit and Pirum, activity. This will require significant attention and effort, necessitating
collating all the requirements now known under the final operating both technology and process change.
model. We are fully committed to providing our clients with the
necessary reporting to fulfil their requirements under the regulation, Jones: Borrowers are increasingly discerning around the clients they
whether this is through providing reporting to our clients or reporting wish to transact with. The type and jurisdiction of the underlying
directly on their behalf. beneficial owner have increasingly become a deciding trading factor
as country risk classifications drive appetite and RWA usage. This
Nottage: State Street is fully engaged and working collaboratively with may negatively impact client performance and revenue if remedial
different parties across the securities finance ecosystem in building a measures are not established. This will likely be in the form of pledge,
scalable operating model that will support current and future business CCPs, collateral expansion, and stability guarantees, for example.
volumes to provide the data, governance and reporting to meet the
regulatory requirements. State Street has engaged with vendor In addition, regulation continues to prompt a greater focus on
platforms to support the operational matching and reconciliation of technology. Firms who have not taken a good look at their systems
trading and the management of collateral to develop the required architecture and made efforts to move with the evolution of
reporting solutions for the trade repositories. There is an open available technology will likely struggle to remain relevant in this
dialogue with both borrowers and lenders to socialise the State Street fast-moving marketplace.
solution and our response to these regulations.
Challice: The challenges we need to address with the highest priority
What are the biggest challenges that the industry faces? would be compliance with the three upcoming regulations which will
have a specific impact on securities finance. Whilst SFTR and CSDR
Bowman: Aside from macro-economic and market factors that impact may be European in origin, they will have an extraterritorial impact and
our industry, enhanced regulation in the form of SFTR and CSDR are likely to change trading behaviour. For these, we’d like to see better
remain a primary focus of attention for market participants. Although industry consensus in terms of operating models; the fact that ISLA
an incredible amount of time and resource is being consumed across continues to have open questions on 50 fields demonstrates the level
the market in readiness for these regulations, they are not the only of uncertainty around how SFTR will be implemented.
challenge on the horizon.
There a number of other challenges/inefficiencies related to the industry,
Borrower demand and behaviour should also be a key area of focus many of which are not new but are increasingly in the spotlight as their
as the increasing cost of balance sheet capital for a securities impact on financial resources becomes more evident. Unfortunately, it’s
lending transaction has reduced borrower demand and pushed banks impossible for one organisation to fix these in isolation and the market
and broker-dealers towards synthetics and swaps as alternative participants mostly seem focused on the implementation of their own
instruments for financing. The consideration of pledge collateral over regulatory solutions.
title transfer has gained much traction in the last 12 months and it is
widely expected that the adoption of Pledge will become increasingly How is the securities finance industry in Europe dealing
important for the industry’s longevity going forward. with Brexit uncertainty?

Nottage: Regulations, and how they are implemented globally, are a central Challice: There has been an active dialogue with our clients and
challenge. The new regulatory regimes will disrupt current operating and counterparties with respect to their and our plans to deal with each
technology models and necessitate a change in the workforce to be able potential outcome of Brexit. We feel confident, that given our footprint
to respond to these changes. The ability of participants to react and across the UK and Europe, that there will be no disruption of business
adapt quickly to these changes will be a key challenge. whatever the outcome.

Tomlinson: In the short term, the regulation still remains the biggest Jones: From a trading perspective, the Brexit impact has thankfully
challenge for the industry. A number of the post-crisis rules have been relatively light so far. We have witnessed some borrowers open
come into force already and some of them are due to go live in 2020 European entities which have led to some contract repapering and new
and onwards, all bringing with them significant change. agreements in some instances—the same for some beneficial owner
clients as well. In terms of market specifics, while demand for UK gilts
The industry will be focusing on SFTR and CSDR, as they are on the has declined in recent years, this is largely following the trend of other
horizon now, the former brings about a reporting regime like nothing highly-rated sovereign issuers, thus Brexit cannot be fully blamed.
we have ever seen before, and the scale and cost of development to In equity markets, there remain pockets of demand for Brexit-related
meet this requirement is as significant as the amount of information stocks, such as home builders, autos and financial services. However,
that will be flowing to the regulator. the full impact will not be known while the political uncertainty remains.

36 Securities Lending Times

European Panel

Tomlinson: Looking at the first three quarters of 2018, one would have more limited, the neighbouring Middle East represents an exciting
said Brexit was having little or no impact outside of discussions on new prospect. As this region looks to diversify their economy away
operating models post-Brexit, as well as the potential need to set up from their reliance on hydrocarbons, governments are seeking to
documentation with new entities that were being considered. encourage greater foreign investment.

However, in the first quarter, the wider political tensions—of which The implementation of securities lending and covered short-
Brexit was a part—took hold. Leverage was reduced and has not selling programmes will be key as they look to develop their capital
come back. Like BNY Mellon, most firms worked diligently towards markets capabilities. In Saudi Arabia, the authorities have already
the 29 March initial deadline and had everything set up prior to implemented a series of new regulations to help facilitate securities
that, so all the extension has done is prolonged the already muted lending and covered short selling, the first for a Gulf state. More
demand to borrow. work is required to deliver a workable operating model, however, this
represents an exciting development in a region that offers significant
Nottage: Many participants have implemented Brexit plans and long-term potential.
strategies to support their business in Europe and the UK with the key
goal of ensuring that impacted clients continue to have a seamless Another noticeable change will come from the increasing demands of
service and are unaffected by possible political changes in the future. our clients to offer a suite of products. The days of securities lending
as a standalone offering are in the past. Clients are increasingly looking
Looking to the future, what opportunities do you see to their asset servicers and agent lenders to provide the infrastructure
on the horizon for Europe’s securities finance industry? they need to run their business as efficiently as possible. This may be
as simple as mobilising collateral for margin purposes or deploying/
Tomlinson: Despite the slow start this year, I remain confident the raising capital, through to more structured initiatives in order to satisfy
future is bright for the industry. The influx of new assets to lending regulatory requirements.
programmes and new routes to market will continue as additional
revenue streams are sought; technology will continue to play a huge Challice: Putting a positive spin on my previous comment, if the
part in connecting the buy and sell side; regulatory compliance will industry gets this right we will all have better, timelier data in
drive demand for HQLA. This will only increase as phase 4 and 5 of the standardised syntax which will then allow both pre- and post-trade
uncleared margin rules come into force. inefficiencies to be addressed.

Interestingly, these markets seem to be able to shrug off bad news Before that, though, the settlement discipline which CSDR requires
and political tension much more easily than in the past but at some will create new demands to borrow securities (to facilitate timely
point, volatility will be back providing an opportunity for the market. settlement), as will the third of the three regulations we mentioned—
Phases 4 and 5 of the uncleared margin rules. While this isn’t directly
Nottage: The ability to offer securities finance solutions through related to securities finance, the need for a joined-up solution to
different channels; for example, State Street is developing a new let clients mobilise their assets in the most efficient way--alpha
product offering Direct Access. This new product introduces the generation from lending versus cheapest-to- deliver to meet their
concept of peer-to-peer lending, bespoke structures and new margin obligations—calls for a joined-up approach between custody,
collateral arrangements, to ensure businesses can run efficiently collateral management and agency securities lending. We believe
and profitably in line with the new regulatory regimes. Being able to this to be a large opportunity for organisations who can provide a
retain and attract key talent is essential to remaining competitive connected outsourced solution to clients to achieve that goal, and is
and developing integrated client-driven solutions. This is where deep a key priority for us.
client relationships will require a combination of strong business
understanding with technology and possible solutions. Bowman: Charles Darwin said that “the species that survives is the
one that is able to adapt and adjust best to the changing environment
Jones: The use of automated processes, algorithms, and self-learning in which it finds itself”. Our industry is no different. Revenue
programmes, largely encompassed under ‘machine learning’, offers opportunities continue for lenders of specials, general collateral and
an exciting opportunity for the industry. collateral swap/high-quality liquid assets transactions. However,
the extent of these opportunities is a fundamental question. Annual
Additionally, beneficial owners who have flexibility within their lending returns fluctuate as a result of underlying market volatility
programme parameters will be well positioned to take advantage of and macro-economic and political events. A successful lending
future opportunities. This may be in the form of non-standard collateral industry will, therefore, need to continue to adapt to change. Pledge,
acceptance, or via new trading structures or routes to market. CCPs, regulation, adoption of environmental, social, and governance
criteria, amongst others, will play an increasingly important role in
The ongoing expansion of the industry’s global footprint continues to the development of the industry over the coming years, to maintain
represent an exciting opportunity. While opportunities in Europe are revenue stability and growth. SLT

38 Securities Lending Times

SFTR solution
No gimmicks

Pirum and IHS Markit, Pirum & IHS Markit’s SFTR Solution offers the
securities finance industry the expertise and flexibility
solving your SFTR needed to meet the challenge set by SFTR. A modular,
requirement together fully hosted reporting solution that combines IHS
Markit’s pedigree in regulatory reporting and data
Securities Lending | Repo management, with Pirum’s expertise in post trade
reconciliation and automation.
For more information contact [email protected]
or call: +44 (0)20 7220 0968 (UK & Europe)
+1 917 565 8575 (US)

In partnership with

www.pirum.com
Eye of the tiger
While many investors are incorporating ESG into securities lending
programmes, it’s not on everybody’s agenda, so the industry must keep
the risks of inaction in sharp focus
committed to banning all trade in ivory. This offers a gleam of
Maddie Saghir reports
hope—we still have time to act.
Environmental, social and governance (ESG) has become a hot
topic in the financial services industry but ESG investing should Christian Nolting, CIO of Deutsche Bank Wealth Management,
not be looked at as the ‘latest trend’ because, according to industry points out in his ‘CIO Insights Reflections,’ that the risks of inaction
experts, it is here to stay. Currently, the planet’s oceans are being are substantial. Inaction has negative consequences for the world
disrupted, the forests are being destroyed, and devastating we live in and comes with concrete economic and social costs.
changes are happening to the climate. We’re also facing a global
poaching crisis but WWF found that wild tiger numbers are on Nolting noted: “Environmental negligence can destroy our living
the up for the first time in conservation history, and China has space, without attention to social matters we sacrifice human capital
 ESG Insight

and hence productivity, and, finallsy, lack of governance creates wrong the value of long-only portfolios. However, the notion that securities
incentives. It’s no secret that wrong incentives tend to have a negative lending is incompatible with ESG because it facilitates short selling is
impact on the environment, but what all too often goes unnoticed a misconception. We believe in efficient markets in which short selling
is that they can have a deleterious impact on long-term financial plays a crucial role. This is well established and documented.”
performance as well.”
Dyson highlighted that in keeping with a responsible investing
Andy Dyson, CEO of the International Securities Lending Association, approach, institutions are able to tailor their lending programmes
explains that ESG investing refers to a class of investing that is also to adhere to specific stewardship codes of conduct, as well
known as ‘sustainable investing’. as the Shareholders Rights Directive and the Principles for
Responsible Investment.
He cited: “This is an umbrella term for investments that seek
positive returns and long-term impact on society, environment and He said: “We are also seeing some institutions screening their
the performance of the business. Sustainable finance includes a counterparties to ensure that they also comply with broad ESG
strong green finance component that aims to support economic criteria. At a more granular level, individual ESG funds may not
growth, whilst reducing pressures on the environment, addressing be able to lend currently as they are only able to accept collateral
greenhouse gas emissions, tackling pollution, minimising waste and which complies with the parameters of the fund. This may not
improving efficiency in the use of natural resources. In light of the always be readily available.”
growing political and social focus on issues associated with climate
change more broadly, investors are increasingly looking to align their “Institutional investors or shareholders, although one step removed
investment strategies with these greener credentials.” from the day to day governance of a company, do have a responsibility
to scrutinise the activities of the management of the company around
A natural step in the securities lending landscape this and other related ESG factors. Exercise of that responsibility
can come through ensuring that they vote at important shareholder
Recently, NN Investment Partners (NN IP) analysed every aspect of meetings, etc. In the context of securities lending, it is important that
securities lending and ESG, and discovered the areas that overlap. any investor has a clear policy around governance and in particular
Xavier Bouthors, senior portfolio manager, securities lending, NN recalling securities to vote at Annual General Meetings (AGM) and
IP, explained: “We adapted these areas to be compatible with our Extraordinary General Meetings.”
ambition to be a leader in responsible investing. We see this as a
natural step in the evolution of the securities lending landscape.” Dyson also noted that through the development of best practice
and operating protocols, it is possible for an institutional investor to
Also from NN IP, Martin Aasly, senior portfolio manager, commented: still discharge its governance obligations while capturing securities
“The first thing to highlight is that our responsible investing team lending revenues as appropriate.
cannot engage with companies if the voting rights have been passed
on to someone else. So, every security needs to be available for voting, Easing the path to a solution
which may sound simple and obvious, but it requires a solid process
of monitoring record dates and issuing recalls when necessary.” Discussing potential cost barriers, Dyson argued that the mobilisation
of so-called ESG assets within lending programmes should not
Bouthors affirmed: “Another area that we see impacted by ESG in necessarily attract additional costs. However, Dyson attained that
recent times is the exclusion of securities that do not fit our ESG the absence of any meaningful non-cash collateral, ESG compliant
requirements for investment. These also need to apply to collateral collateral buckets is a clear barrier at the moment.
received under securities lending. These ‘exclusion lists’ were once
tricky to incorporate but are now adopted by tri-party collateral agents He added: “While recognising that this is not necessarily a simple fix to
as part of a push from beneficial owners.” a complicated problem, we are keen to explore market-wide solutions
around establishing best practice and industry standards which may
He continued: “Asset managers have also had to evaluate their ease the path to a solution here.”
approach to the potential issues arising from differences in fiscal
status between assets and fund domiciles. Asset managers should Ross Bowman, client management, BNP Paribas Securities Services,
conduct their securities lending activity in a way that complies with observed: “Both data and costs of technology were the top two
local tax rules, and seek to avoid entering into securities lending barriers to ESG integration cited under the 2018 BNP Paribas Global
transactions for the purpose of improving their tax position. At NN IP ESG survey of 347 respondents from 16 countries within the global
we have measures in place to prevent the facilitation of such trades.” investment community.”

Aasly added: “Finally, a common perception of securities lending is that “As a result, there is a growing opportunity for global banking groups
it facilitates shorting and that shorting is bad because it undermines to provide data and technology solutions to investors that utilise the

www.securitieslendingtimes.com 41
ESG Insight

vast array of available data while leveraging technology platforms to Bowman added: “Ensuring strong programme governance, providing a
benefit from economies of scale.” high degree of flexibility on what securities are accepted as collateral,
tailoring cash collateral investments and providing lenders with an
Faryda Lindeman, senior responsible investment specialist, NN IP, ‘ESG related score’ to facilitate the benchmarking of borrowers from a
stated that ESG integration represents an opportunity to modernise sustainability perspective, are tenets that are fast becoming key focus
the investment management industry but is a process with hindrances areas for lenders.”
as well as, “a lack of standards for measuring ESG performance; lack
of ESG performance data reported by companies; concerns about the Increasingly important
underperformance of ESG investments; lack of ESG data from other
sources; and costs associated with ESG integration”. While ESG is becoming increasingly important for investors, the
demand for further education in this area has heightened. Recently,
Lindeman remarked: “We contest that there is a lack of ESG data Chartered Financial Analyst UK launched a new qualification in ESG
from sources other than the companies. This may have been an issue investing, which will be available to investment professionals later
in the earlier days of responsible investing, but nowadays there is this year. The Certificate will be the first formal qualification on ESG
a proliferation of ESG data, both in the ‘traditional’ as well as in the investing available sector-wide investment professionals in the UK.
alternative data domain.”
This increasing interest to engage and educate investment
“The challenge is more to focus on those data points that are relevant professionals on ESG investing stirs some cause for optimism.
for the business model and financial value creation. There may be
concerns around the cost associated with ESG integration, particularly Bowman suggested that institutional investors are making investment
if investment managers feel they need to have access to a multitude decisions based on the long-term sustainability of a company, and not
of ESG data providers and the extra people to analyse / interpret that, just its financial performance. He added that such decisions, reflect
but NN IP analysis shows that responsible investing does not have to on the values of that investing company.
cost returns. It may even improve financial returns.”
He added: “Lenders are beginning to reshape their securities lending
Incorporating ESG programmes in line with the ESG tenets they are adopting more
broadly across their business and investment practices.”
Incorporating ESG into securities lending programmes won’t be
smooth sailing. Bouthors commented: “There are substantial Meanwhile, highlighting further cause for optimism, at NN IP, Lindeman
challenges involved in adapting a securities lending programme to observed the opportunities of ESG and found a strong link between
ESG parameters, and it requires both knowledge and expertise in both the longer-term positive impact of ESG integration and improved risk-
lending and sustainable finance.” adjusted returns, in addition to its effects on the well-being of both
society and the environment.
Aasly explained that NN IP monitors the record dates and annual
general meetings so that securities are back well in time to vote. He She outlined: “Aside from that, we are convinced of the benefits of
advised that lenders should seek to automate this as much as possible. integrating ESG information into the investment process for our equity,
fixed income and multi-asset strategies. ESG is relevant because it
Bouthors stated that a key step in incorporating ESG factors is the relates to both corporate competitiveness and the strategic choices
protection of voting rights. He explained: “So we maintain the right to companies make.”
recall and restrict our securities at any time to engage in shareholder
meetings. This is embedded in the securities lending process “Focusing on ESG factors enables our analysts to unlock
where our Responsible Investing team, who oversees governance potential value by identifying the associated opportunities and/
responsibilities, monitors securities for voting.” or risks, which fund managers then use as the basis for their
investment decisions. Focusing on ESG also ensures that we live
“We then recall the securities and restrict them from lending until up to our values, and demonstrate good corporate citizenship.
voting is concluded. This ensures NN IP can always exercise its voting It helps us better align our core business with the broader
rights and prevents ‘empty voting’.” expectations of society.”

Aasly noted that just as their approach to responsible investing Going forward with a sense of optimism, the risks of inaction must
excludes certain types of business activities for investments, the be kept in sharp focus. As Sir David Attenborough recently pointed
same principles apply to collateral received. He commented: “NN IP out: “It may sound frightening, but the scientific evidence is that if
applies dynamically adjusted exclusion-lists of both equity and fixed we have not taken dramatic action within the next decade, we could
income securities with triparty collateral agents to ensure only eligible face irreversible damage to the natural world and the collapse of
securities are used in any trade with NN IP.” our societies.” SLT

42 Securities Lending Times

 Tailor-made solutions
in Prime Finance.

Visit us at www.zkb.ch

We are the perfect choice when it comes to prime finance. Our central
Prime Finance Desk will deliver a bespoke solution that is sure to lead
you to your desired goal in the shortest time. Nowhere else will you find
more expertise than on +41 (0)44 293 62 62 or at [email protected].
Industry Drivers

Building from the base

David Lewis of FIS explains that before moving onto AI and machine
learning, the industry needs to strengthen its foundations first
Uncleared Margin Requirements (UMR) is another interesting
Maddie Saghir reports
topic. You’ve got the steady reduction of the thresholds in which
What types of behaviours are the likes of SFTR, CSDR, you are required to post margin. We’ve gone from the seven
and UMR driving in the securities finance industry? biggest firms to the next 35 becoming eligible this September. The
next charge, in September 2020, will affect just under 900 more
The Securities Financing Transactions Regulation (SFTR) is a trade firms because the next threshold drops dramatically. Suddenly,
reporting requirement and in many ways, it shouldn’t be over-thought— you’ve got lots of other firms that weren’t involved before who
it is what we do, and it is how we work. Other parts of the financial have now got to post margin that was never required before. From
markets have been through this already with the European Market the securities finance industry’s point of view, it could be a great
Infrastructure Regulation (EMIR), for example. demand driver.

Driven by SFTR, lots of people will have to look at the nuts and bolts It is also something that we have to structurally think about because
of their trading systems and behaviours, potentially needing to change while a sudden uptick in demand is great, we’ve got to be able to
the way they’re booking things to make sure they’re getting it right. In manage it and make sure our systems are prepared. A lot of the topics
addition, we as an industry, will need to fix some of the fundamental discussed at symposium were about efficiency and automation;
structural issues we are facing. meeting these demands effectively is all part of that.

In a data panel at the Securities Finance Technology Symposium, it How will UMR affect the trading of non-centrally
was discussed that firms need to have the right foundations. It can cleared OTCs and the future of collateral management?
be tedious to some, and we’d perhaps rather talk about artificial
intelligence (AI), machine learning and all of the other shiny bells and I could argue that the trading of non-centrally cleared over-the-counter
whistles, but you need to get the base technology and data right first. (OTC) transactions will start to become centrally cleared. When you
think about what some of these regulations—such as SFTR—are trying
SFTR will drive the industry to be much clearer about data because to do, they are nudging the industry towards exchanges. The regulators
it is a regulatory imperative. There are lots of things we would love love exchanges because they are transparent, efficient, and arguably
to do but regulatory drivers mean that you have got to comply with more secure. There are lots of mechanisms there that regulators like,
regulation otherwise your business is over. SFTR is all about getting so, reading between the lines of SFTR, it is encouraging the use of
that data martialed at the right place and at the right level. For central counterparties and exchanges. With UMR, it is uncleared OTC
example, legal entity identifiers (LEIs) need a reference to every single derivatives that are being targeted.
entity. LEI’s are just one of a multitude of changes that can make our
industry so much better in terms of efficiency and technology. SFTR A recent study showed that few firms are fully compliant
is going to do a lot to make us change behaviours and, in the long run, for the UMR due to be implemented September this
adopt some much needed best practice approaches. year, why is this? What advice would you give to firms
who are not yet compliant?
Central Securities Depository Regulation (CSDR) is one regulation that
is creeping up behind us, and it is all about settlement certainty. If People are somewhat behind the curve; part of this is due to people’s
we don’t get some of these settlement behaviours right, then there one-by-one approach. If an organisation is not willing to put their
will be fines. One of the unintended and not necessarily positive money into investing what is required, then the regulators will no
consequences of CSDR is around the periphery of market participants. doubt take a dim view of their approach.
Some market participants will not take the risk of lending a security,
particularly if it is illiquid. People want settlement certainty and the When EMIR went live, those who didn’t have an LEI could not trade, it
illiquid stocks, by definition, can be harder to settle and thus carry more was as simple as that. The regulators are strict. If you are not going
risk. This could lead to a reduction in the lendable supply of harder to to post margin on derivatives in line with the regulations, then don’t
settle assets, raising the risk of settlement failures, not reducing it. trade derivatives.

www.securitieslendingtimes.com 45
Industry Drivers

What challenges will CSDR present the industry with? Your technology has to be in a position where you’re able to send
every lifecycle event to ESMA. ESMA wants to be able to audit
It is all about settlement certainty. However, people are not convinced from start to termination every single transaction. In order to do
that settlement efficiency is that bad. Some argue that it is a little bit that, they need every life cycle event because if they jump one
of a sledgehammer to crack a nut. then the front is not going to meet the back. The importance
of technology, and applying that technology thoughtfully, is
A large part of the securities finance industry is about ensuring an absolute prerequisite to success with SFTR. The industry
settlement certainty and that is where it started many years ago. is being driven into the dark corners that we didn’t really worry
It was a back-office operation undertaken to raise settlement about before and we have to get that stuff right. We need
certainty, for example to reduce failure rates through the borrowing technology to meet the complexity of requirements that ESMA is
of assets. asking for.

When we think about the fact that the regulators are now trying to In a panel at the Symposium, the moderator asked panellists if
codify that and say “you must do that and if you don’t then you’re they thought ESMA knows what is coming in terms of the tsunami
going to pay a fine”, in some ways it is over-egging the situation as of data. And, I’m not sure they do. We’re talking about a million
nobody wants to fail, and many take stringent measures to avoid life cycle events per day from just one of our many clients.
it already. The quantities of data are absolutely enormous. It is going to
be interesting and a little bit worrying at the same time. The
Failure rates are lower than we think; the very industry that is International Securities Lending Association and the International
trying to stop them—and makes its living, partly at least, out Capital Market Association are trying to help ESMA understand
of stopping them—is potentially going to be impacted by this. It what they’re in for. There is so much data to sift through that I do
might be the lower liquidity end of smaller organisations, the lower not envisage any meaningful analysis or response from ESMA until
liquidity stocks, the very things you really want to be available in an some time after SFTR goes live.
emergency because something is failing. It might be the ones who
say “no, I won’t lend you that for fear of a fine”. So, we potentially How prepared are firms for SFTR? Do you think there
have a negative impact. will be a large number of firms who will not meet the
deadline in Q2 2020?
Will it really improve behaviours? I’m not sure that behaviour is bad.
People don’t go out of their way to fail on purpose. There is a very wide range of readiness. There are some organisations
who have had people and budgets in place for some time. They are
Do you think firms will fully utilise technology to help coming to us and saying: “give us another version of the software,
overcome challenges associated with SFTR? what have you built so far, we’re ready to test, we’re building our
own internal mechanisms”. There are some organisations who are
Yes, I do. If you don’t apply heavyweight technology to SFTR then absolutely on it and there are some who have only recently said that
you will fail. When we think about some of our largest clients at they’ve come to the decision that they want our system, and they have
FIS, they might have half a million outstanding positions that less than 12 months until go-live.
can generate more than a million life cycles per day, all of which
are reportable to the European Securities and Markets Authority Now that a date is known, people can put a project plan in place.
(ESMA). Those lifecycle events have up to 80 matchable fields in For some organisations, up until that point, the people who hold the
them. Having a number of employees trying to solve that in any budgets and hold the priority lists have said until they know when they
sense manually will simply fail. Think of the enigma code and how have to comply they are not going to do anything. Therefore, there are
they had to break it over a 24-hour period, and once that 24-hour different states of readiness. I would suggest very few are not going to
period had gone, all work on it was gone too. The daily reporting make it. They have to. It is a date you have to meet. If you don’t you’re
of transactions under SFTR will be a lot like that. If you are going breaching your regulatory responsibilities, and if you do that, then you
to be reporting 1,000,000 life cycles a day, when the cut-off ends are not trading.
for that day, you’re starting again. If you have made one error on
one matching field in 10 percent of those trade messages, which I think an interesting variation of the question would be, “how many
is very conservative, it is actually 100,000 breaks that you’re people are going to make a mess of it?”. They may be live and they
building up every day. If you don’t fix them then by the end of are putting data over the wall to the trade repository, but is it correct?
the week it is 500,000 breaks. You have to apply heavyweight Much of the assessment each nationally competent authority will
technology to cope with that. As I said earlier, the right approach make, will probably include how much effort and commitment the
would be to avoid these breaks in the first place by focusing on reporting firm has expanded on SFTR. Firms that can demonstrate
the foundation data and accurate processing. Getting the basic effective preparation and testing, for example, will likely be in a better
stuff right will pay significant dividends in the end. position than those that cannot. SLT

46 Securities Lending Times

Automation. Innovation. Collaboration.

It’s time to take your repo and securities

lending business from good to great.
• Trading made simpler with our automation technology and
exception-based processing.
• All your electronic, voice, and chat trading in one place.
• Easy integration with electronic markets, tri-party agents,
and market utilities.

Contact us at
markets.iongroup.com
[email protected]
CCP Insight

View from the CCP

As Eurex Clearing’s CCP service continues to establish itself, Deutsche
Börse Group’s Mathias Graulich discusses the outlook for the Lending CCP
Topics shaping the securities lending market globally are concentrated Ongoing developments have driven market participants to analyse the
on the crucial areas of legislation and regulation as well as impact on their securities lending businesses. Regulatory changes
infrastructure and technology. More precisely, meeting the continued introduced under European Markets Infrastructure Regulation
demand for collateral optimisation, the legal challenges surrounding in Europe and the Dodd-Frank Act in the US were put into place to
Brexit, the implementation of Central Securities Depositories reduce systemic counterparty and operational risk and imposed the
Regulation (CSDR) and Securities Financing Transactions Regulation requirement for financial counterparties to centrally clear eligible
(SFTR) and the drive for the enhanced use of technology solutions over-the-counter (OTC) derivative trades and to post initial margin and
across the entire securities lending process. variation margin against non-cleared derivatives transactions.

48 Securities Lending Times

 CCP Insight

As a result, there is an increasing shortage of high-quality collateral in Challenges and opportunities

the market. The scarcity of high-quality liquid collateral is stimulating
the demand for collateral transformation using securities lending as The challenge for Eurex Clearing is to continue to engage and bring
a key mechanism. committed participants together to identify and form the next steps
towards transforming the securities lending market. Eurex Clearing is
Creating and maintaining cost and capital efficient uniquely positioned to encourage dialogue on strategy and initiatives
trading strategies that drive the delivery of a new phase of market access for securities
lending with the aim of shaping the growth of CCP utilisation for the
Market participants strive to implement beneficial capital cost- securities lending market. A key focus is to continue our collaboration
efficient methods of trading via electronic platforms and utilising with clients to bring innovation to the market. At Eurex Clearing, we
central clearing as a form of safeguard. Central clearing will continue believe that our clients and key market players are fundamental
its onward march and become even more important to the market to drive the growth and transformation of central clearing for the
as it leads to greater safety and integrity in the financial markets. securities lending market.
The driving factor is to continue the transformation of the securities
lending market from a non-standard, bilateral OTC model to a more At the end of last year, we hosted a ‘CCP Think Tank’ meeting with
progressive and sustainable operating model. the objective to bring committed participants together to identify
and form the next steps towards ‘building a market’. As a result, the
Lending CCP Strategic Committee was formalised and a number of
primary work streams were identified. The Lending CCP Strategic
Committee consists of BNY Mellon, BlackRock, Citi, EquiLend,
J.P.Morgan, Morgan Stanley, Natixis and Pirum, has met monthly

We believe that in 2019 to achieve a committed and streamlined approach for the
development of the Lending CCP service.

our clients and key Outlook

market players are
As far as the Lending CCP is concerned, Eurex Clearing looks forward
fundamental to to maintaining its role as a leading market infrastructure provider

drive the growth and and partner to our clients. As safety and integrity are also objectives
that buy-side and sell-side market participants have in common,
transformation of Eurex Clearing anticipates further demand for its innovative Lending
CCP service. The Lending CCP has major buy-side clients and agent
central clearing for lenders operative on its service and continues to extend the range of

the securities lending clients, markets, and assets into our offering. As a result, we expect
the daily average on-loan volume to steadily increase for both equity
market and fixed income segments.

Service features
Member of the executive board,

head of fixed income, funding

Eurex Clearing’s Lending CCP covers loans in European equities,

and financing strategy and
Eurex Clearing AG, global

Exchange Traded Funds as well as international fixed income assets.

Deutsche Börse Group

Direct CCP access for beneficial owners via a specific lender license,
provides significant benefits to market participants. It preserves the
Mathias Graulich

relationship-driven business structure and at the same time delivers

the capital efficiency and safety associated with central clearing. The
development

Lending CCP reduces counterparty risk exposure and eliminates the need
for multiple credit evaluations. As part of Deutsche Börse, Eurex Clearing
is the only infrastructure provider with an integrated clearing offering
across derivatives, equities, securities lending and repo transactions.

www.securitieslendingtimes.com 49
Data Analysis

Opportunities emerge for UK equity lenders

Sam Pierson of IHS Markit discusses the state of equity lending revenues
so far in 2019
• Average fees for ‘specials’ on the rise also be attracting directional short bets. The spike in borrow fees in
May made Sirius the most revenue generating UK materials stock
• Increased willingness to pay for hard to borrow shares
this quarter to date, pushing past Anglo American. While the fees
• Q2 UK equity VWAF highest since 2017
for new loans of Sirius shares declined over the last two weeks of
May, they still have the highest average fee for a UK equity with at
Year-to-date UK equity lending revenues through May 2019 are 16 least $100 millon in balances.
percent below the same period of 2018. This lackluster start to 2019
is only slightly better than total EU equity lending revenues, which are Other UK equities leading the increase in special balances include
down 22 percent year on year. Despite the backdrop of lower revenues, Blue Prism Group, Amigo Holdings & Victoria Plc. While the
utilisation and return to lendable, there is some cause for optimism on balances are quite low, Purplebricks Group deserves a mention for
the part of UK equity lenders. Namely, an increase in the average fees being the only UK equity whose weighted average fee is greater
for ‘specials’, or stocks with exceptional borrow fees, relative to the first than 100 percent annualised. The weighted average fee for UK
half of 2018. ‘specials’ increased from 600bps to 800bps over the twelve months
ending 30 May.
Filtering UK equities to those with average fee greater than 200
basis points, there has been a notable increase in the average fees, Despite the rally from the Q4 lows, the broader UK equity market is
suggesting a greater willingness to pay for the most in-demand shares. still more than 10 percent below where it started 2018. The lower
One standout is semiconductor firm IQE, whose weighted average fee share values have reduced lendable assets by 6 percent over the
has been greater than 10 percent since October last year. The increasing first 5 months of 2019 relative to the same period in the prior year.
fees and loan balances were sufficient to make IQE the most revenue Frustrating the potential for higher utilisation, loan balances have
generating UK equity in Q4 2018 and Q1 2019. While fees have trended declined by even more (15 percent). The decline in balances has put
down on the margin year-to-date, IQE is still the third most expensive to pressure on lending revenues and returns to lendable, despite the
borrow UK equity with more than $100 million in balances. lower lendable base. The increase in fees for specials are helping
to establish greater value for lending programmes, despite the
Metro Bank has the second highest fee for a UK equity with significant overall drop in balances. The higher fees for specials are pushing
loan balances. The lender’s share price has declined more than up on overall fees, with Q2 weighted average fees for all UK equities
50 percent year-to-date amid concerns regarding classification of on pace to exceed 50 basis points for the first time since Q4 2017.
commercial loans (which resulted in the bank
holding lower reserves). Shares on loan have Sirius Minerals Plc lendable shares & spot borrow fee
surged as short sellers seek to maintain a
position above $100 million while the share
price declines. The increased borrowing
demand has pushed the utilisation of lendable
shares above 90 percent, which has coincided
with the increased fees.

The materials industry group contains some

of the most revenue generating UK equities.
The significant balances in Anglo American
made it the second most revenue generating
UK equity in Q1, despite having a low average
fee. Sirius Minerals is an emerging special in
the sector, with hedging activity relating to
the firm’s convertible bonds driving a portion
of the borrow demand, however the timeline
to profitability for the firm’s potash mine may

50 Securities Lending Times

 Conference Report

The Great White North

The strength and stability of the country’s securities lending market was
reinforced at the Canadian Securities Lending Association’s 9th Annual
Conference, and panellists suggested positive change is happening in Canada
Maddie Saghir reports interest and dividends. According to a speaker, interest and dividends
may also be an example of where the beneficial owner is entitled to
The Canadian securities lending market’s reputation for strength and claim sovereign immunity.
stability was once again reinforced at this year’s Canadian Securities
Lending Association (CASLA) Conference in Toronto. For securities lending arrangements completed prior to 19 March,
Steeves explained that compensation payments in respect of loaned
Panellists at the conference discussed some of the foundations of corporate shares paid by a Canadian resident borrower to a non-
Canada’s reputation: its experienced market participants, proven resident lender were characterised as interest for withholding tax
infrastructure and a prudential regulatory regime that works in purposes unless the loan was fully collateralised.
collaboration with market participants, and the country’s interaction
with the rest of the world. Steeves noted that fully collateralised means, that throughout the term
of the securities lending arrangement, the borrower provided collateral
The conference kicked off with a global economic update presentation with a value not less than 95 percent of the value of the loaned shares.
by Benjamin Tal, managing director and deputy chief economist,
CIBC, who indicated that the global economy is currently in a fog of He stated: “Securities lending arrangements completed prior to
uncertainty. Tal observed that 2017 saw a peak for the global economy, 19 March, where a loan was fully collateralised, compensation
but it has dipped since then. This was partly down to political concerns, payments in respect of loan corporate shares paid by a Canadian
but the speaker said in 2017 there was “a rush” for “cheap money”. resident borrower to a non-resident lender, were characterised as
dividends. Dividends would be subject to Canadian withholding tax.
Despite the global economic slowdown, the US pushed against this The new characterisation rule applies to compensation payments
trend. Tal said this was a “short-term gain”, but could result in “long- on or after 19 March unless the payments are pursuant to a written
term pain” for the US. arrangement entered into before 19 March.”

Elaborating on this, he added: “Usually, governments stimulate their In that case, the new rule will apply to compensation payments
economy when it’s down—not up—but Trump provided an extra lift that beginning in October 2019, Steeves added.
it did not need when it was high.”
The moderator asked panellists if the supply-side is sufficient right
Meanwhile, in a panel on regulation and funding, speakers now. Speakers confirmed that a number of firms have indicated that
suggested that positive change is happening in Canada after there is a significant amount of supply and it could have a significant
the Canadian government revealed it was to make changes to impact on pricing.
a variety of federal tax laws earlier this year. Discussing the tax
laws, Christopher Steeves, Fasken Martineau DuMoulin LLP, said One speaker predicted that there is a big plumbing change coming
that “withholding tax rules applicable to certain cross-border share to the industry. The speaker explained that the changes involve the
lending arrangements were amended in response to perceived futures having a liquid market, making sure that the swap conventions
withholding tax avoidance”. are consistent as well.

He commented: “Canadian non-resident withholding tax generally Meanwhile, during a panel that had a regulatory focus, panellists
only applies where certain payments (including dividends interest) discussed the European Securities and Markets Authority’s (ESMA)
are made by a resident to a non-resident of Canada. Domestic rate of Securities Financing Transactions Regulation (SFTR) Level III
withholding tax is 25 percent. Rates may be reduced or payments may consultation paper and warned that this could present the last
be exempt under an applicable tax treaty.” opportunity to make changes.

The panel also pointed out that under the Canada-US tax treaty, Article Following ESMA’s deliverance of its Level III guidance on 27 May,
XXI exempts US pension funds from Canadian withholding tax on Tamela Merriweather, senior vice president, assistant general counsel,

www.securitieslendingtimes.com 53
Conference Report

Northern Trust, said: “SFTR is coming and this consultation paper stated that they leverage operational groups and technology,
probably presents the last opportunity to make changes, if any. The understanding the trading rules for each market, and communicating
consultation paper asks for comment on a number of things and seeks trading requirements is very important.
feedback. It also clarifies what is in scope and out of scope for SFTR.”
On the topic of technology, France Boisjoli, head of securities finance,
Merriweather noted that one of the hurdles for non-EU participants will equity market, Caisse de dépôt et placement du Québec, stated:
be the need to obtain a legal entity identifier (LEI). “Two major elements that helped support growth is technology and
engagement of our support teams. Technology is an essential factor
She continued: “ESMA expects to see reporting on all securities in achieving efficiency.”
financial transactions whether or not they’re settled, and it was
disappointing to see they took this broad view of the scope of Boisjoli continued: “Automation has always been an integral part of
transactions to be reported.” our business, and I believe that if something can be automated then
it should be.”
“In terms of key risks, I would say that it will be interesting to see what
sort of access non-EU beneficial owners will want to have or continue The panel agreed that the industry has come a long way since the
to have to the EU markets. For so many years we have been on a financial crisis, and Boisjoli explained: “Securities lending used to
path toward globalisation, will we now see trends toward domestic be more of a ‘back office’ business and was done with no regard for
portfolios or will beneficial owners accept the increased regulatory the optimisation of the collateral and its composition, cross-asset
demands of cross-border activity?” trades, liquidity as well as balance sheet optimisation, legal and tax
regulations, and the risk profiles of counterparties.”
Glenn Horner, managing director, State Street, cited: “Different
regulators go down different paths in terms of getting the information She added: “However, the 2008 financial crisis and the regulations
they want. The US thought the European regulators were going well that came after have changed the landscape of securities lending
overboard. We also have the other issue with Brexit. I’m not sure SFTR forever. This was complex and while it posed a lot of challenges it
is going to offer any stability to the market. And it’s a huge financial also poses a lot of opportunities. We have changed significantly over
resource for the technology to deal with it.” the years and thus developed our businesses as a result.”

Later in the panel, the moderator asked panellists if they thought SFTR During the panel that gave a buy-side perspective on securities lending,
is driving technology opportunities. one speaker suggested that shorting is more of an art than a science.
The speaker suggested that shorting is more of a thesis. They said:
In response, Michael Norwood, associate director, EquiLend, said: “Your initial thesis might be blown, and so re-evaluating your thesis is
“The industry has to become more efficient and precise. Operational very important.”
processes and reconciliations have to be done in a more timely manner
because of the upcoming SFTR and Central Securities Depositories The moderator asked: “When I think about shorting, it is incredibly
Regulation rules.” difficult and there are lots of challenges to it, how do you establish a
thesis around it and how do you execute it?”
“As a result, you have to take advantage of tools today, whether it be
automation or reconciliation tools. The more you take advantage of One speaker replied: “We look for red flags—for example, bank
the technology, the easier it is going to be to comply with the regulatory statements—and we take these and look deeper into them. A big part
regime that is coming.” of what we look for on the short side is high yields.”

Technology, challenges, and opportunities became topics of discussion The moderator then asked panellists if they had spoken to a
during one panel entitled ‘Industry leaders—the current and future state of management team with the preconceived notion that you want to
securities lending’, and Robert Goobie of Healthcare of Ontario Pension short them.
Plans, explained that challenges “encourage us to think differently, and to
think differently means coming up with new solutions”. One panellist replied: “Interviewing the management teams is a key
part of our process. Questions, for example, include ‘if you could only
Goobie cited: “Solutions such as changes to the legal doc combining sell through one product what would it be?’.”
master repurchase agreement (MRA) and global MRA since all these
functions are been centralised. We should consider other forms of They explained: “Questions like this help to probe thinking better.
credit rating not the standard S&P etc.” You don’t become a CEO unless you’re an excellent sales person,
people will tell you the most optimistic perspective on it. It
Some of the challenges the panel discussed included trading in is about getting them to tell the full story, such as a series of
different time zones. To help overcome this challenge, one panellist interviews.” SLT

54 Securities Lending Times

Working hard to discover hidden specials
• Securities Lending

• Single Stock Futures

• REPO

• Financing

Leading Finnish Securities Finance Boutique • Emerging Markets

Don’t miss the next issue of SLT
SLT is present at all of the major securities lending conferences
around the world. Make sure you pick up a copy of the latest issue

Trade & Transaction The SFTR Implementation Forum

Reporting Amsterdam
Amsterdam London

June 2019 July 2019

26 09

Finadium Investors in Securities Lending 3rd Edition Impact of SFTR on Securities

Conference Paris Lending and Reporting Conference
London London

September 2019 November 2019

24 09
 Are you ready
to report for SFTR ?
NEW TRAINING COURSES

Introduction Overview Reporting basics Transaction

Course materials What is SFTR? Product knowledge reporting
Course format The 3 pillars What to report, Format
Objectives Why the need ? when and to whom ? Trade/ Position level
State of play Who should report ? UTI generation
Reporting triggers
and non-triggers.
Quiz

Reports & Action Field by field Reporting Relationship

Types analysis of ESMA’s examples with TR
4 Tables validation file Repo: Bilateral & TRs’ obligations
6 Reports Table 1 chain inc CCP/BSB SFT validation
10 Action Types Table 2 early termination/ SFT reconciliation
SL quantity change/
Reports vs Action Table 3 Collateral change &
Response to client
Types Table 4 reuse/Margin update

This course is provided by Market FinReg .

A fantastic communicator, with a huge New September dates

huge knowledge of EU legislation..... Madrid 9 September 2019
It really answered lots of the questions
Luxembourg 11 September 2019
I had regarding SFTR..... So many issues
Frankfurt 12 September 2019
about SFTR fell into place..... This SFTR
training course covered every aspect from London 16 September 2019
‘Why SFTR?’ to the individual fields..... Online Always

www.regis-tr.com
[email protected]
Industry Appointments

Moves at GLMX, Elixium, DeltaOne and more

GLMX has appointed Andy Wiblin as chief He will also assist in the production of of experience in securities lending and prime
product officer. advanced tooling in conjunction with the services, to lead the development of our
recent alliance between ULTUMUS and Velox securities lending business.”
Wiblin previously held a senior position at Financial Technology.
ION Trading, where he was responsible for IHS Markit has appointed Stewart Cowan
business development in repo, securities Bernie Thurston, CEO, ULTUMUS, commented: as head of Asia Pacific (APAC) securities
lending and collateral management products “Femi Orangun joining ULTUMUS is a key hire finance product, effective from 3 June.
and services. for the business and a firm commitment to
bring the most experienced people on-board Based in Sydney, Cowen will report to Paul
Phil Buck, managing director of GLMX for further developing our index and exchange- Wilson, managing director and global head of
Europe, previously worked with Wiblin at traded fund data, meaning that we are the ‘go securities finance at IHS Markit.
ION Trading. to’ company for anybody who needs timely or
accurate benchmark data.” Cowen will oversee all regional activities with
Since June last year, Wiblin has been a focus on business development and strategy
working as an independent financial Clear Street has hired Salvatore Cangialosi execution, identifying growth markets and
markets consultant. and Antonio Maneri to work in its expanding synergistic data sources, and introducing new
securities lending team. services and solutions for beneficial owners.
Gareth Mitchell has departed Elixium as
global head of client relations, sources Jack Nicosia has also joined Clear Street as Cowen joins IHS Markit from fintech firm
have confirmed. director after leaving his role as managing Digital Asset Holdings, where he served as a
director at ETC. senior product manager for distributed ledger
According to sources, Mitchell’s contract technology and smart contract solutions.
came to the end of its term and was Cangialosi joins as managing director, having
not renewed. previously held director and managing director Prior to this, Cowen served at J.P. Morgan as the
positions in securities lending at Credit Suisse APAC head of trading services, responsible for
Mitchell started his role at Elixium in November and TD Prime Services, respectively. regional business growth and client management
last year and was based in London, reporting in the agent lending segment. Cowen has also held
to CEO Nick McCall. Maneri joins Clear Street from his role as senior roles at State Street and Perpetual Trustees.
executive director at Morgan Stanley, where
Prior to Elixium, Mitchell served as global head he developed expertise in securities lending Wilson said: “I am delighted that Stewart
of securities finance equity trading for Europe, and prime brokerage services across more Cowen is joining IHS Markit to lead the growth
the Middle East and Africa and Asia head of than 20 years. of our securities finance product in APAC.”
securities finance at Citi.
The appointments come as part of the firm’s He added: “Cowen has a wealth of knowledge
He served at Citi for more than 18 years. efforts to improve the sourcing, locating, clearing across all our client segments, including
and settlement of products and transactions. borrowers, banks, agents, asset managers,
Mitchell’s departure follows Roberto Verrillo’s, hedge funds and beneficial owners.”
who left Elixium in May this year. Chris Pento, co-founder and CEO of Clear
Street, commented: “At Clear Street, we are “Most importantly, his leading-edge insight on
Femi Orangun has departed DeltaOne improving access to financial markets. Funds the region’s securities finance sector will help
Solutions, part of IHS Markit, where he spent of all sizes—from startups to multi-billion us capitalise on significant opportunities to
more than 15 years as a primary architect of dollar funds—will use our technology platform expand our presence there.”
benchmark feed platforms. to clear and settle transactions.”
Roberto Verrillo has left Elixium where he
During his years as a primary architect, “Securities lending will be an important part of served as COO, based in London.
Orangun was intrinsic in the design of the that platform. Effectively sourcing and locating
Markit XML feed and the DeltaOne SOLA hard-to-borrow financial products will give our Prior to this, Verrillo worked at Nomura Global.
application. clients the flexibility they need to implement their
trading strategies.” Commenting on his departure, a spokesperson
Orangun has now joined the ULTUMUS team from Elixium said: “Elixium would like to thank
as a solutions architect, to assist in the He added: “We are bringing together a team of Roberto Verrillo for his work and wishes him
development of its data platform. outstanding professionals, each with decades well in the future.”

58 Securities Lending Times

www.deutsche-boerse.com /GFF

Funding and Financing

Creating more
efficient and
secure markets

Deutsche Börse Group securities lending services include Eurex

Clearing’s Lending CCP; the first CCP globally to offer the safety
and efficiency of central clearing to the bilateral securities lending
market. The Lending CCP operates an integrated solution for your
securities financing transactions, without changing the existing
business relationships of all market participants.

The right funding and financing solution.

IN A CHANGING WORLD,
BY THE TIME YOU MASTER
THE GAME, THE RULES HAVE
CHANGED.

ANTICIPATING YOUR BUSINESS ENVIRONMENT

At Securities Services, we support your business in
adapting to ever changing regulations. Our expertise
across the globe ensures your assets are serviced
effectively in over 100 markets.
www.securities.bnpparibas

The bank
for a changing
world

BNP Paribas Securities Services is incorporated in France as a Partnership Limited by Shares and is authorised and supervised by the European Central Bank (ECB) the ACPR (Autorité de
Contrôle Prudentiel et de Résolution) and the AMF (Autorité des Marchés Financiers).
BNP Paribas Securities Services, London branch is authorised by the ACPR, the AMF and the Prudential Regulation Authority and is subject to limited regulation by the Financial Conduct
Authority and Prudential Regulation Authority. Details about the extent of our authorisation and regulation by the Prudential Regulation Authority and regulation by the Financial
Conduct Authority are available from us on request. BNP Paribas Securities Services, London branch is a member of the London Stock Exchange. BNP Paribas Trust Corporation UK Limited
(a wholly owned subsidiary of BNP Paribas Securities Services), incorporated in the UK is authorised and regulated by the Financial Conduct Authority.