What is ISLA working on at the moment?
Since we gathered as an industry in Lisbon last year, the demands and expectations being placed upon our members and various stakeholders have changed considerably. This has led to a notable investment in both people and infrastructure to support the industry across a number of different disciplines. Not unexpectedly, the Â鶹´«Ã½ Financing Transaction Regulation (SFTR) figures prominently in much of what we do, and we now have a dedicated team that is working through the broad array of implementation issues with our members between now and Q2 2020 when the first reports are due. While SFTR does dominate much of our technical work, we are also looking at the implications of Central Â鶹´«Ã½ Depositories Regulation (CSDR) and how the arrival of fines for failed settlements and mandatory buy-in regimes will force us to change our behaviours, particularly in the post-trade world. Notwithstanding the very real focus on the imminent arrival of these important pieces of regulation, we are also thinking more broadly about the future of our industry, including the development of greater and more efficient settlement and communications protocols through common domain models (CDM). In many ways, CDM’s are the immediate manifestation of the future in our world today. While we recognise the importance of developing robust and scalable reporting and trading infrastructures, we are also looking at how we can develop access to new markets and different ways of unlocking securities lending liquidity. In particular, we have begun looking at how we may add to the debate around the development of securities lending capabilities in the Middle East. The arrival of Saudi Arabia with global indices such as MSCI and FTSE will drive expectations from global investors who will want to trade efficiently in and out of these markets.
What trends are you seeing in the securities lending space?
In the post-crisis world, securities lending has become an increasingly complex business that is driven by many binding constraints on both sides of the transaction that can change over time. While this complexity creates challenges, it also offers opportunities to those that understand this changing landscape as well as those who can capitalise on them. One of the clear messages we have seen from talking to market participants from all elements of the value chain is that creativity and flexibility are key drivers for success in the industry today.
What are you expecting to be the big talking points at the ISLA conference in Madrid?
We have a varied and diverse agenda in Madrid this year, with many new speakers and topics not normally associated with this event. In addition to our normal mix of technical updates and interactive panel sessions, I would highlight the elements of the agenda that are devoted to the changing role of technology, and in particular the tokenisation of assets and the development of smart contracts. We are also very fortunate to have Steven Maijoor, the chair of the European Â鶹´«Ã½ and Markets Authority, with us again this year. His perspectives on where we are today as an industry and what we might expect to see next will be a ‘must see’ for all delegates.
Is the industry becoming more collaborative as a result of SFTR?
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 said that, there is also a growing recognition and appreciation that associations such as ISLA can do certain things on a collaborative basis. Much of our work in the legal space has for many years allowed member firms to leverage the ability that ISLA has to obtain netting enforceability opinions at a single price point, thereby reducing unit costs and providing legal certainty. More recently, SFTR has brought with it many common issues and problems where a common collaborative approach has allowed many minds and experiences 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?
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, and there is always a propensity to put off today what you can leave until tomorrow, particularly if it requires capital investment in the business. Rightly or wrongly, the business around the legacy Agent Lender Disclosure (ALD) process is seen by many as being out of step with the current regulatory landscape especially in respect of trading transparency and new client approvals. SFTR is driving institutions to review many aspects of their business including how the current ALD process will sit alongside or even instead of SFTR data flows.
Over time, I would expect most firms to want to dispense with the legacy ALD trading information as SFTR data flows will be more timely and accurate through the adoption of broad industry standards such as legal entity identifiers.
What will ISLA be working on in the next 12 months?
As we look out 12 months, there are some clear elements of what we are doing today that will still be with us this time next year. SFTR has a feeling of inevitability about it, although I would hope to see the first reports produced by this time next year. As we get closer to go live with SFTR, CSDR will feature more prominently as firms think about how they minimise the more extreme elements of this regime.
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 think that the work we are doing today to better understand how CDM’s can be applied to our markets, will have begun to change the way we look at future technology and settlement infrastructures.
I also anticipate that we will be increasingly more active in looking to unlock assets in jurisdictions including the Middle East, where I expect to see greater momentum behind the development of a more broadly based capital markets ecosystem that will attract international institutional investors.
Finally, we should not forget that we still have to be ready for the UK leaving the EU at some point and the arrival of a very different parliamentary structure in Brussels later this year.
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