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Although the initial Markit Lists created industry-wide More To Do such as average trading volume constraints that are
harmonization for the first time, the very nature of that inappropriate for open-ended funds.
standardization, limited growth considerably. To satisfy Now as in 2018, there is still much to do. What has
demand for more securities and to allow for a degree of become evident over the last couple of years is the Looking back to a previous example, at the end of January
flexibility & customization, Markit are about to launch Lists continuing lack of ‘ownership’ within the securities 2018, a leading UCITS FTSE100 ETF reported 1.6 million
v#2 which will radically increase the number of eligible finance industry itself. Rather it is being largely supported units traded on the London Stock Exchange⁴, but a further
ETFs. by a small band of enthusiasts who are more often than 12.2 million recorded under MiFID II reporting, giving a
not peripherally involved through their involvement in the true picture of 13.8 million shares that traded. Looking
Whilst continuing to support the first generation ETF industry. at the same ETF on 11 November 2020, the on-screen
product, this new offering will have ‘Overlap Scores’ liquidity had grown to 22.1 million units, and the entire
based on empirical analysis of holdings using the daily I put myself firmly in this category by definition. Now traded volume that day was an impressive 89.8 million
ETF Portfolio Composition Files – this in turn allows is the time for industry practitioners to rise to the units, or over ‘half-a-billion sterling’ in notional terms.
for a slight deviation away from the big brand indices challenge, and to resource and prioritise this opportunity Contrast this with a well-known stock such as HSBC, Andrew Jamieson
and creates a much broader pool of inventory. Custom appropriately. This is particularly relevant when so many the third largest constituent in the FTSE100, which only Managing Director
Lists allowing profiles to be specific to Collateral of the industry’s heavyweights generate so much revenue traded 38 million shares that day, worth a total of £150 Global Head of ETF Product
Receivers risk mandates and eligibility criteria will from the product itself. million in comparison. Citi
further broaden the universe, such that it is not
inconceivable that a particular Lender’s List in future Illustrious names in securities finance such as State Street, This is a testament to how relevant and liquid ETFs have Andrew is a Managing Director and Global Head
may run into the thousands of ETFs rather than the Bank of New York, Brown Brothers Harriman, Northern become and yet it is still not lent as ‘GC’ nor readily taken of ETF Product at Citi.
low hundreds. This will undoubtedly have a significant Trust, BlackRock and J. P. Morgan - to name but half a as collateral?
positive affect when it comes to increased usage of dozen are also the top names in the ETF industry, either In his role he is responsible for leveraging Citi’s
ETFs as collateral. as issuers or custodians, and often both. Notwithstanding these challenges and issues, demand global network across divisions and asset classes
and interest drives change and therefore, regardless to align processes and outputs in all regions and
It cannot surely be too long before their clients of which side of the lending, borrowing or collateral work alongside underlying products and support
Parallel Opportunities? and their colleagues become more vocal to the pledging or receiving conundrum your firm sits on, being functions to drive global excellence as it pertains
missed opportunities? more vocal and ‘owning’ change is key to resolving these to ETFs.
What the Markit ETF Lists unquestionably do, is bring last hurdles and bringing ETFs fully into the mainstream
clarity & classification to a product that the marketplace With global AuM forecast to hit $12 trillion in the next for securities finance. This includes the build-out of their Fixed Income
has historically found challenging. There is no evidence to few year, ETF numbers on-loan or pledged as collateral and Currency Beta platform, the development
suggest that the inability to bring ETFs into the mainstream are still modest at best. Many major lenders are still With the impending implementation of CSDR and the yet of an ETF Custody and Fund Administration
was down to mistrust or lack of interest, rather the inability unable to unlock their full inventory, being unable to unknown implication for ETFs, there could be a very real business, the enhancement of Citi’s Issuer Swap
to cope with a product that did not adhere to the norms identify them in their custody system or overcome the upsurge in demand to prevent punitive penalty charges platform, the evolution of Funding, Capital
of the single security environment. What is interesting is multiple sedol challenge. and buy-ins, resulting in further revenue growth for the Treatment and Collateral framework for ETFs and
how these recent advances in understanding, and more industry and opportunities for clients. all Legal, Technology and Operational advances.
importantly tools to accommodate, could be relevant for More often than not, misconceptions persist about the
another seismic change about to sweep the industry : ESG. lack of appetite to borrow, and the consequent lack of Opportunities like these outside North America are Furthermore the role provides a key resource for
There are huge parallels in the current explosion in interest prioritisation depletes availability feeds and dampens growing swiftly for ETFs and in line with the wrapper itself the regional Sales and Distribution teams and he
in ESG products with ETFs. Both are irreversible trends enthusiasm yet further. Unsurprisingly prime brokers have and consequently now is the time to help build a more serves on Citi’s global ETF Steering Committee.
that are set to dominate the investor landscape and have historically been uncomfortable indicating stable supply efficient lending market for ETFs and ensure significant
come to symbolise the rise of the millennial investor. to hedge fund customers that in turn ultimately stifles new revenues are not missed. The challenge is on! Previously Andrew was Managing Director and
potential demand, creating a vicious circle of inactivity. Global Head of Broker-Dealer and Market-Maker
Therefore, the imminent requirement for the securities Relationships for BlackRock’s iShares ETF business
finance industry to adapt to increasing ESG constraints Similarly, reliance on only on-exchange volume data, and is a regular contributor to both print and
could benefit from a similar approach adopted by ETFs, (which vastly under emphasises the true secondary market digital media for leading global publications and
particularly as the ETF industry is leading the way in ESG liquidity), results in a skewed impression, particularly speaker at industry conferences and events.
conversion and adoption. in combination with traditional ‘single stock’ practices, ⁴Source: Bloomberg

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