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For the six month period to 30 June 2019, the following be down to several one-off factors, including banks
are the key highlights from our review of the global looking to capitalise on the USD liquidity premium seen
securities lending markets. at the half year which led to an increase in the demand
for US Treasuries.
As at 30 June 2019, reported global on-loan balances
were circa €2.2 trillion. This was broadly unchanged In Europe, there has been less demand to borrow
from the reported number six months earlier. HQLA following the end of the ECB’s QE program in
December 2018. As demand has fallen, fees have been
Reported securities being made available by compressed which has in part been compounded by
institutional investors within lending programs additional HQLA assets coming into programmes.
showed a notable increase, rising from €16.6 trillion
at 31 December to €19.6 trillion at the half year end. In equity securities lending markets, balances
However, it should be noted that during this period, remained stagnant as hedge funds and other
the Dow Jones Industrial Index increased by some Alternative Investment Managers (AIMs) appeared to
15% over the same period. With over 67% of all lack investment conviction, with the uncertainties of
securities being made available for lending being the global trade war between China and the US, Brexit
classified as equities, the reported increase in overall and wider central bank policies all creating a climate
lendable appeared to be driven in part by increasing of uncertainty.
asset valuations rather than assets coming into
lending programmes. Recently published statistics suggest that revenues
from securities lending fell 15% in the first six months
Government bonds being made available for lending of the year compared with the same period in 2018.
did appear to show new supply coming into the market,
increasing by 13% to €2.8 trillion. As insurers take The provision of securities lending liquidity from
advantage of all-time record low yields, these securities Sovereign Wealth Funds (SWFs) continues to be a
are finding their way into lending programmes as prominent feature of our markets. As at 30 June, SWFs
holders look to maximise returns. made up 6% of available inventory and 14% of loans
globally across all asset classes.
Government bond lending represented circa 43% of all
securities on-loan globally, highlighting its continued Reported non-cash collateral was circa €1.5 trillion,
importance to overall secondary market liquidity and and represented 67% of all lending business globally.
the role of securities lending in the context of HQLA
In Europe, the reported amount of non-cash collateral
The expected additional demand for high quality held in tri-party was €1.4 trillion. Within this number,
collateral as a result of the implementation of equity collateral increased marginally from 41% to 43%
waves four and five of the uncleared margin rules in of the reported total.
2020, will drive additional requirements to borrow
government bonds. 37% of government bonds held as collateral within tri-
party were classified as Asian securities.
In the run up to the half year end, we saw the expected
reduction in on-loan balances as banks repositioned Following the publication of the detailed RTS
trading books to comply with binding regulatory for SFTR in April, the immediate timeline for the
constraints. Just prior to the half year end however, implementation of this important initiative has
there was a sudden spike in the demand to borrow been defined. The industry will have to mobilise
government bonds with on-loan balances increasing by considerable resources to achieve compliance with the
Executive Summary 7% in the final days of June. Reasons for this sudden reporting obligations of Article 4 ahead of go-live in
April 2020.
increase in the demand for government bonds may
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