ISLA: Regulation may force out sec lending players
29 March 2016 London
Image: Shutterstock
Growing regulatory pressure could push institutional lenders out of the securities lending market, according to the International Â鶹´«Ã½ Lending Association’s (ISLA) latest market report.
The claimed the consequences of a participant drop-off would be a squeeze on market liquidity and institutional investors finding it harder and more expensive to invest in equity markets.
The combined burden of compliance with the Â鶹´«Ã½ Finance Transaction Regulation, the Bank Recovery and Resolution Directive and the Central Â鶹´«Ã½ Depository Regulation was cited by the report as likely to be too much for some market participants to bear.
UCITS funds, which were highlighted in the previous ISLA report as being disproportionately targeted by regulation, are also facing further restrictions on their involvement in securities lending.
The report’s focus on regulation continued with the insight that Basel III and the liquidity coverage ratio have created a term market in high-quality liquid assets that didn't exist two years ago.
Data shows that 25 percent of all government bonds are borrowed for three months or more.
The report also covers appetite for cash versus non-cash collateral, the fall of equities in triparties and dominance of mutual and pension funds as a percentage of all beneficial owners’ assets available for lending.
The claimed the consequences of a participant drop-off would be a squeeze on market liquidity and institutional investors finding it harder and more expensive to invest in equity markets.
The combined burden of compliance with the Â鶹´«Ã½ Finance Transaction Regulation, the Bank Recovery and Resolution Directive and the Central Â鶹´«Ã½ Depository Regulation was cited by the report as likely to be too much for some market participants to bear.
UCITS funds, which were highlighted in the previous ISLA report as being disproportionately targeted by regulation, are also facing further restrictions on their involvement in securities lending.
The report’s focus on regulation continued with the insight that Basel III and the liquidity coverage ratio have created a term market in high-quality liquid assets that didn't exist two years ago.
Data shows that 25 percent of all government bonds are borrowed for three months or more.
The report also covers appetite for cash versus non-cash collateral, the fall of equities in triparties and dominance of mutual and pension funds as a percentage of all beneficial owners’ assets available for lending.
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