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Securities Lending Market Report | December 2022

Final Thoughts & Outlook

The second half of 2022 did not quite live up to the first six months from a securities finance revenue point of view, but
it certainly wasn’t short of geopolitical issues, central bank polices to digest and general market instability.
Whilst there were some positive signs into year-end in Looking ahead for the securities finance market, I see
regards to the inflationary pressures easing and the equity continued pressure on capital consumption across the
markets showing a potential rally, there are some that market, pressure still remains on some agent lenders, as
believe that this stock-market optimism has come too soon well as borrowers, to reduce their balance sheet burden.
and will potentially be short lived. Looking ahead there are With this, comes continued focus on more capitally efficient
clearly risks that could be particularly harmful to Europe but alternate routes to market. Another big topic going forward
globally as well. These include a further escalation of the will be settlement efficiency. As CSDR has perhaps not had
war in Ukraine; as this conflict goes on longer than anyone the expected impact so far, there is more focus on how
had initially expected. With Russia’s influence on the energy settlement rates can improve across the market and how
industry, any further escalation will cause additional strains working with the regulators can help achieve the desired
on an already stressed sector. results.
Other potential hurdles in the year ahead include the My last two points of focus are the move to T+1 settlement
weaker earnings forecasts globally, a harder landing for in the US and the ever increasing technology enhancements I am looking forward to another rich year
policy makers and the evolution of interest rates. Many are available across the industry. T+1 is a big change in market
hoping for a softer landing and potential rate cuts once dynamics and it will be extremely important for the market for securities finance; surely, we have a role
inflation has been controlled and upon confirming the to adapt correctly to these settlement changes. European
economies’ resilience. Going the opposite way, the fear of regulators will be keeping a close eye on how smoothly the to play in supporting the market and many
a global recession remains. There is a split across analysts implementation goes in the US as they too look to shorten
on whether a recession can be avoided or not this year – settlement cycles in the future. In that regard, the second development paths to follow.
especially in Europe – but no doubts, entering a period of item could be of massive support. Technology can help
recession would bring its own set of challenges. solve many issues, and its wider adoption as an enabler
in the market will unlock so much future potential for our
Lastly, from a macro perspective, I believe it is key to industry. We are in the midst of a Cambrian explosion in
keep a close eye on what happens further east. As China terms of technological advancements, and the possibilities
presses on with their reopening, it will be important to see that blockchain, AI, machine learning, and big data can bring
how they handle this rocky situation. Supply and demand to securities finance are limitless.
across many sectors is heavily reliant on China and this
has the potential to offset optimism in other areas of the I hope this summary was insightful to you and I am looking
global economy. Any large divergence away from fully forward to another rich year for securities finance; surely,
reopening could further impact global supply chains and we have a role to play in supporting the market and many
have a detrimental effect on the global economy, as the development paths to follow, especially when it comes to
anticipated boost in demand is short-lived. technology and sustainable finance.