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Foreword

Dear Reader,
As we enter a new decade, we are once again delighted Regulation (SFTR), amended SFTR validation rules, and a of mandatory buy-in regimes, and the introduction of concrete evidence pointing to a cause and effect con-
to welcome you to the latest edition of ISLA’s Securities statement on Legal Entity Identifiers (LEIs). ESMA’s pub- additional monitoring processes, amongst other things. nection between these practices and the existence of
Lending Market Report. This, our 12th edition, provides lications have essentially provided the final pieces of the undue short-term market pressures.
an excellent opportunity to think about those forces and implementation framework that the industry has been As we look into 2020 and beyond, it is often easier to
influences that shaped the latter part of 2019, and how working towards over the past eighteenth months. From focus on specific rules-based topics such as SFTR and As suggested at the start of this Foreword and as we look
our markets will respond to some very different chal- the perspective of our industry, SFTR has cast as much CSDR, which as an industry we tend to mobilise well to the new decade, we are already beginning to see some
lenges that simply did not exist ten years ago. of a shadow and dominated our agenda, as Brexit has around, with the mutualisation of common issues within very powerful drivers within the financial services sector,
done for the rest of the UK. Like Brexit we now have final ISLA. However, we are not immune to much broader and the sustainable finance agenda looking most notably like
Since our last report, which was published in August of clarity around the delivery of SFTR, and by the time we more fundamental topics that are reshaping the world a strong agent for change. Having said that, many of the
last year, some of the political uncertainties that were start work on our next Securities Lending Market Report around us. Today, images of forest infernos and melting challenges seem very familiar and have been with us for
driving much of the news agenda since the UK voted to later this year, we will be several months into the live ice caps in mainstream media are familiar sights. Where many years. We are still talking about governance, voting
leave the EU, have been swept away. The UK is heading reporting regime. We remain fully committed to getting previously one could have dismissed them as either fake and liquidity, only that this is through a different lens. We
for a very different future. The implications for our mar- this most complex of regulatory initiatives over the line news or natural climate variations, this position is no should not underestimate these matters, but feel confi-
kets still remain unclear, as we await trade negotiators to in April, but as we do that, we are already looking ahead longer sustainable or appropriate. It is important that we dent that as an industry we have the creativity to reach
hammer out some sort of a future deal. It is already clear to a future state of the industry and how the work that play an active role in both shaping that debate and look- pragmatic and workable solutions.
as an Association however, that we will have to operate we have done with many of you can be used. As much ing for creative solutions within our markets and beyond.
across two quite potentially different regulatory regimes. of our work around SFTR coalesces around industry best With this in mind, ISLA recently announced the formation Many of the themes that have already been touched upon
practice, we will use this as a first stop along the digital of the ISLA Council for Sustainable Finance (ICSF), which resonate in the guest pieces that feature in this edition.
Somewhat closer to home, recent announcements around road towards the development of a common domain will be a key building block in establishing principles and We would therefore like to take this opportunity to thank
the profitability of the industry at the end of the year paint model (CDM) for our markets. In a world where revenues best practice frameworks for our industry as we enter FIS Global and the Alternative Investment Management
something of a mixed picture. According to DataLend¹, the are under increasing pressure, the efficiencies afforded by this ever changing and rapidly developing debate. Whilst Association (AIMA) for their insightful contributions, as
global securities finance industry generated $8.66 billion CDM frameworks, especially in the post-trade space, will responsible investing has been with us for at least twenty well as FleishmanHillard EU, who have worked with our
in revenues for lenders in 2019. Whilst this represented help firms enhance the bottom line. years, the pace of change is increasing and the broader in-house Regulatory & Market Practice group to pro-
a fall of some 13% when compared to 2018, most accept environmental, social and governance (ESG) debate is duce a roadmap of expected EU developments between
that was an exceptional year for the industry. These mar- As SFTR comes to some sort of short term conclusion, the beginning to drive much of what we all do in both our 2020 and 2022, and the potential implications for
ket level announcements have been followed by a series arrival of the Central Securities Depositories Regulation personal as well as business lives in the foreseeable future. securities lending.
of lackluster earnings results from the lending community. (CSDR) later this year will add very real regulatory pen-
Commentators have cited a number of reasons, including alties and potentially penal buy-in regimes to what is Somewhat unexpectedly, in December we saw the In closing, we would like to thank our data partners;
global macro uncertainty driven by trade wars, Brexit and already a crowded post-trade world. We continue to work Japanese Government Pension Investment Fund (GPIF) BNY Mellon Tri-Party, Clearstream, DataLend, Euroclear,
central bank actions for the general lack of conviction hard with our members to develop best practice solutions decide to withdraw from securities lending. Part of the FIS Global, IHS Markit and JP Morgan Tri-Party for their
seen across the alternative investment community; this that will hopefully minimise some of the extremes of this rationale given by GPIF, was the ‘short-termism’ of short valued data inputs.
is where most demand to borrow securities comes from. piece of legislation. We are also actively engaged with sellers, who seek to profit from falling share prices. Not
Although disappointing, these factors look temporary the regulatory community in pursuit of alternative, more surprisingly, we did not agree with that view, and it was
rather than structural, suggesting that revenue opportu- pragmatic outcomes that provide the necessary comfort encouraging to see the comments made by ESMA in their
nities will return as these specific factors unwind. that regulators and policy makers are looking for, but also report on undue short-term pressure on corporations
allow the market to function more efficiently. Earlier this which was published on 18 December. In the report,
On January 6, The European Securities and Markets month, we participated in a joint trade associations’ letter ESMA highlighted that short selling and securities lend-
Authority (ESMA) published its final report, Guidelines to regulators, outlining a number of practical proposals ing are key for price discovery and market liquidity. They
on reporting under the Securities Financing Transactions around the introduction of cash penalties, the deferral also went on to conclude that ESMA is not aware of ISLA Team

4 ¹DataLend provides aggregated, anonymised, cleansed and standardised securities 5
finance data covering all asset classes, regions and markets globally