ICMA: ECB sec lending must expand
11 January 2017 London
Image: Shutterstock
The International Capital Market Association (ICMA) has reaffirmed its calls for the European Central Bank (ECB) to expand its securities lending facility in response to the extension of the central bank鈥檚 asset purchase programme (APP).
In its first of 2017, ICMA noted that ECB鈥檚 public sector purchase programme (PSPP), which directly relates to the European repo market, is approximately 80 percent based on government bond collateral.
鈥淗olding securities within the PSPP naturally removes them from the market and it is only through the arrangements for securities lending that these holdings can then be made available to assist the market in meeting its operational needs. In consequence, collateral availability could decline, at a time when collateral demands are increasing,鈥� ICMA stated.
鈥淚n particular, new derivative margining requirements are starting to be imposed, and this comes at a time when there is already evidence that pressure on the collateral market has been increasing.鈥�
Specifically, ICMA highlighted that collateral decomposition by issuers and type suggests a notable increase in the share of German and Italian government bonds.
In response to the ECB鈥檚 December announcement of its decision to extend its APP until December 2017, ICMA acknowledged the positive amendment to introduce cash collateral for PSPP securities lending facilities.
ICMA added that this alone will not solve current concerns and there remains scope to further enhance the effectiveness of the securities lending arrangements.
The association also reaffirmed its commitment to being an active player in the arena in the coming year.
In its first of 2017, ICMA noted that ECB鈥檚 public sector purchase programme (PSPP), which directly relates to the European repo market, is approximately 80 percent based on government bond collateral.
鈥淗olding securities within the PSPP naturally removes them from the market and it is only through the arrangements for securities lending that these holdings can then be made available to assist the market in meeting its operational needs. In consequence, collateral availability could decline, at a time when collateral demands are increasing,鈥� ICMA stated.
鈥淚n particular, new derivative margining requirements are starting to be imposed, and this comes at a time when there is already evidence that pressure on the collateral market has been increasing.鈥�
Specifically, ICMA highlighted that collateral decomposition by issuers and type suggests a notable increase in the share of German and Italian government bonds.
In response to the ECB鈥檚 December announcement of its decision to extend its APP until December 2017, ICMA acknowledged the positive amendment to introduce cash collateral for PSPP securities lending facilities.
ICMA added that this alone will not solve current concerns and there remains scope to further enhance the effectiveness of the securities lending arrangements.
The association also reaffirmed its commitment to being an active player in the arena in the coming year.
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