SFTR, Brexit, and technology reign at IMN
18 September 2018
As the securities lending industry descended on London for two days of insight and discussion at this year鈥檚 annual European 麻豆传媒 Finance and Collateral Management Conference, SFTR remained at the forefront of attendees鈥� minds
Image: Shutterstock
At this year鈥檚 annual European 麻豆传媒 Finance and Collateral Management Conference, the 麻豆传媒 Finance Transaction Regulation (SFTR) was mentioned in most panels, while Brexit, technology disruption, and opportunities of pledge were also hot talking points.
In the first panel, the speakers hit the ground running by agreeing and predicting that the SFTR was going to drive the market for the rest of this year.
During the panel, speakers agreed that providing data and delivering data for counterparties will drive where business goes, and as a reporting obligation, while SFTR isn鈥檛 meant to change market practices, it will.
One panellist warned: 鈥淚f you鈥檙e not at a point where you can transmit and reconcile the data [for SFTR], you will not be a participant in the market.鈥�
One panellist said: 鈥淏orrowers will be very dependent on the lenders for that data. If they can鈥檛 get the data in the right format, they will have to move the business. The regulation is very complicated. SFTR is definitely going to drive business.鈥�
Another panellist affirmed: 鈥淲e have our best people on the industry working on this. We will resolve it as a regulatory issue. Clients should not be impacted by it. Like every other piece of regulation, we have to deal with it and get through it. We鈥檙e already putting our best people on it, and generally, the data vendors are participating. They are doing a good job on that, but it is our job to fix it.鈥�
Also discussed was the impact of Brexit and what it could mean for the securities lending market.
One panellist said: 鈥淚 don鈥檛 think Brexit is an opportunity, it鈥檚 a disappointing outcome. It鈥檚 a distraction and a disruption, something that you have to commit resources towards.鈥�
Another panellist, giving a US perspective, said: 鈥淚 think when we talk about regulation and Brexit, it鈥檚 all about resource distraction and documentation distraction. That鈥檚 always a challenge.
But as with all regulatory issues, the industry has ways to get through them.鈥�
Brexit was also discussed in a separate panel on macroeconomic factors and their implications for the European securities finance market.
One panellist asked another whether the 鈥渘oise鈥� being made about Brexit in the UK was reflected across the EU, or if it wasn鈥檛 that big of an issue for Europeans.
In response, the panellist said that those in the EU needed to ensure that the wheat was separated from the chaff when it comes to Brexit. The panellist explained that those in the EU are 鈥渁ware of the key decisions鈥�, but try to avoid the politics of Brexit.
鈥淢ost investors can handle it, we鈥檝e got to remain stable,鈥� the panellist added.
Another panellist, who said he was speaking from the broker community, said that Brexit is a 鈥渕ultidimensional issue which spans pretty much everything we touch on a day-to-day basis鈥�.
鈥淭here are the political angles to it, which we are all watching every day. It鈥檚 very hard to pick the middle ground.鈥�
鈥淔rom our point of view, we are asking clients to come to the table, some of us are hoping some of this will go away, but the reality is we need to plan for Brexit in March. The more effort we can put into that, the better given the timing.鈥�
鈥淭here鈥檚 a massive amount to be done in a short amount of time. We want to be ready ahead of March. There鈥檚 a risk of a lack of awareness at a regulatory level of the critical importance of securities lending and repo in the continued functioning of the market.鈥�
During another session, concentrating on critical issues heading the agendas of beneficial owners, the panellist questioned whether lenders struggle to keep up with their clients.
鈥淒o securities lenders live by a vanilla-type business report?鈥�, questioned one panellist. The panellist challenged the lenders on the panel suggesting 鈥渢he minute a client wants to step outside that norm, some of you struggle to keep up with that client鈥�.
In answer to this comment, one panellist said: 鈥淭here has been a legacy thought process in this business to standardise and push that standardisation through. There鈥檚 increasing agility in providers and across providers. We have the infrastructure, so we鈥檙e increasingly seeing clients coming to us around initial margin, where they need to generate cash on short notice.鈥�
The panellist explained that one reason for this aforementioned struggle to 鈥渒eep up with the client鈥�, might be the increasing level of regulatory compliance, as well as the need to keep up with the speed of technological innovation.
They added: 鈥淭here鈥檚 so much going on with emerging technology now, we鈥檙e spending a huge amount of time around innovation. We鈥檙e looking at a lot of technology solutions for things like peer-to-peer lending.鈥�
One panellist compared the level of innovation available before the financial crisis to now, stating: 鈥淚n terms of innovation, [in the context of] the financial crisis 10 years ago, lending programmes, across the board, then and now, are hugely different.鈥�
Another said: 鈥淭imes have changed鈥搘e understand a borrower鈥檚 perspective more now than perhaps we may have 20 to 30 years ago.鈥�
In the same panel discussion, another topic discussed was the consideration of pledge becoming an increasingly viable alternative to market.
The panellist said although the economics might stack up staying where you are, 鈥渋t does make sense to look at alternatives, and sovereign or state type entities are more likely to want that鈥�.
One panellist agreed, but added: 鈥淧ledge has been designed by borrowers, but beneficial owners want to commit to certain transaction types.鈥�
In a separate panel, which looked at evaluating collateral management and optimisation strategies in today鈥檚 market, a panellist discussed the recent implementation of phase three of initial margin (IM) requirements for non-centrally cleared derivatives, which formally began on 1 September.
This continues a long-term process launched in response to the global financial crisis of 2008 to 2009, when the G20 agreed to a financial regulatory reform agenda covering the over-the-counter derivatives markets and market participants.
The panellist said phases four and five will have a major impact on the way banks are organised to understand collateral. One panellist affirmed: 鈥淲e see more collateral post-global financial crisis. The overall trend is toward collateralisation鈥搘hether in derivatives forms or pledge forms of collateralisation, these days it鈥檚 almost moving in
real time.鈥�
However, when discussing exchange-traded funds (ETFs), one panellist said these type of funds are not ready to be eligible for collateral.
They said: 鈥淓TFs, in a lot of cases, are not eligible for collateral, they鈥檙e not available, or not worth it, you have to consider practical operational considerations.鈥�
They added: 鈥淔rom a regulator鈥檚 perspective, there is still some way to go to make ETFs appeal as an asset class of their own.鈥�
On the occasion of the 10th anniversary of the financial crisis, one panellist asked, as the financial market stands, could the financial crisis happen again today, and would it be repeated or avoided.
One panellist stated: 鈥淚t should not happen again, we are more organised.鈥�
Another panellist concluded: 鈥淭he past shows it鈥檚 clear what happens in a crisis situation that puts stress on the market, now we have a much greater level of transparency.鈥�
In the first panel, the speakers hit the ground running by agreeing and predicting that the SFTR was going to drive the market for the rest of this year.
During the panel, speakers agreed that providing data and delivering data for counterparties will drive where business goes, and as a reporting obligation, while SFTR isn鈥檛 meant to change market practices, it will.
One panellist warned: 鈥淚f you鈥檙e not at a point where you can transmit and reconcile the data [for SFTR], you will not be a participant in the market.鈥�
One panellist said: 鈥淏orrowers will be very dependent on the lenders for that data. If they can鈥檛 get the data in the right format, they will have to move the business. The regulation is very complicated. SFTR is definitely going to drive business.鈥�
Another panellist affirmed: 鈥淲e have our best people on the industry working on this. We will resolve it as a regulatory issue. Clients should not be impacted by it. Like every other piece of regulation, we have to deal with it and get through it. We鈥檙e already putting our best people on it, and generally, the data vendors are participating. They are doing a good job on that, but it is our job to fix it.鈥�
Also discussed was the impact of Brexit and what it could mean for the securities lending market.
One panellist said: 鈥淚 don鈥檛 think Brexit is an opportunity, it鈥檚 a disappointing outcome. It鈥檚 a distraction and a disruption, something that you have to commit resources towards.鈥�
Another panellist, giving a US perspective, said: 鈥淚 think when we talk about regulation and Brexit, it鈥檚 all about resource distraction and documentation distraction. That鈥檚 always a challenge.
But as with all regulatory issues, the industry has ways to get through them.鈥�
Brexit was also discussed in a separate panel on macroeconomic factors and their implications for the European securities finance market.
One panellist asked another whether the 鈥渘oise鈥� being made about Brexit in the UK was reflected across the EU, or if it wasn鈥檛 that big of an issue for Europeans.
In response, the panellist said that those in the EU needed to ensure that the wheat was separated from the chaff when it comes to Brexit. The panellist explained that those in the EU are 鈥渁ware of the key decisions鈥�, but try to avoid the politics of Brexit.
鈥淢ost investors can handle it, we鈥檝e got to remain stable,鈥� the panellist added.
Another panellist, who said he was speaking from the broker community, said that Brexit is a 鈥渕ultidimensional issue which spans pretty much everything we touch on a day-to-day basis鈥�.
鈥淭here are the political angles to it, which we are all watching every day. It鈥檚 very hard to pick the middle ground.鈥�
鈥淔rom our point of view, we are asking clients to come to the table, some of us are hoping some of this will go away, but the reality is we need to plan for Brexit in March. The more effort we can put into that, the better given the timing.鈥�
鈥淭here鈥檚 a massive amount to be done in a short amount of time. We want to be ready ahead of March. There鈥檚 a risk of a lack of awareness at a regulatory level of the critical importance of securities lending and repo in the continued functioning of the market.鈥�
During another session, concentrating on critical issues heading the agendas of beneficial owners, the panellist questioned whether lenders struggle to keep up with their clients.
鈥淒o securities lenders live by a vanilla-type business report?鈥�, questioned one panellist. The panellist challenged the lenders on the panel suggesting 鈥渢he minute a client wants to step outside that norm, some of you struggle to keep up with that client鈥�.
In answer to this comment, one panellist said: 鈥淭here has been a legacy thought process in this business to standardise and push that standardisation through. There鈥檚 increasing agility in providers and across providers. We have the infrastructure, so we鈥檙e increasingly seeing clients coming to us around initial margin, where they need to generate cash on short notice.鈥�
The panellist explained that one reason for this aforementioned struggle to 鈥渒eep up with the client鈥�, might be the increasing level of regulatory compliance, as well as the need to keep up with the speed of technological innovation.
They added: 鈥淭here鈥檚 so much going on with emerging technology now, we鈥檙e spending a huge amount of time around innovation. We鈥檙e looking at a lot of technology solutions for things like peer-to-peer lending.鈥�
One panellist compared the level of innovation available before the financial crisis to now, stating: 鈥淚n terms of innovation, [in the context of] the financial crisis 10 years ago, lending programmes, across the board, then and now, are hugely different.鈥�
Another said: 鈥淭imes have changed鈥搘e understand a borrower鈥檚 perspective more now than perhaps we may have 20 to 30 years ago.鈥�
In the same panel discussion, another topic discussed was the consideration of pledge becoming an increasingly viable alternative to market.
The panellist said although the economics might stack up staying where you are, 鈥渋t does make sense to look at alternatives, and sovereign or state type entities are more likely to want that鈥�.
One panellist agreed, but added: 鈥淧ledge has been designed by borrowers, but beneficial owners want to commit to certain transaction types.鈥�
In a separate panel, which looked at evaluating collateral management and optimisation strategies in today鈥檚 market, a panellist discussed the recent implementation of phase three of initial margin (IM) requirements for non-centrally cleared derivatives, which formally began on 1 September.
This continues a long-term process launched in response to the global financial crisis of 2008 to 2009, when the G20 agreed to a financial regulatory reform agenda covering the over-the-counter derivatives markets and market participants.
The panellist said phases four and five will have a major impact on the way banks are organised to understand collateral. One panellist affirmed: 鈥淲e see more collateral post-global financial crisis. The overall trend is toward collateralisation鈥搘hether in derivatives forms or pledge forms of collateralisation, these days it鈥檚 almost moving in
real time.鈥�
However, when discussing exchange-traded funds (ETFs), one panellist said these type of funds are not ready to be eligible for collateral.
They said: 鈥淓TFs, in a lot of cases, are not eligible for collateral, they鈥檙e not available, or not worth it, you have to consider practical operational considerations.鈥�
They added: 鈥淔rom a regulator鈥檚 perspective, there is still some way to go to make ETFs appeal as an asset class of their own.鈥�
On the occasion of the 10th anniversary of the financial crisis, one panellist asked, as the financial market stands, could the financial crisis happen again today, and would it be repeated or avoided.
One panellist stated: 鈥淚t should not happen again, we are more organised.鈥�
Another panellist concluded: 鈥淭he past shows it鈥檚 clear what happens in a crisis situation that puts stress on the market, now we have a much greater level of transparency.鈥�
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