After a break of almost three years, I was delighted to welcome back so many of you to our annual summer flagship conference last week. Whilst much has been written and discussed about how we have all came to terms with the idea of remote working and virtual meetings during the pandemic, the incredible turnout at the event suggested that the ability to meet friends and colleagues in-person, is a fundamental part of who we are as individuals but also an industry.
In addition to being able to meet people face to face, with many for the first time in several years, I felt that there was a different mood, representing something of a fundamental shift in the markets that we serve.
The first of these was the realisation that for many, securities lending is no longer a discrete business but simply a product that institutions use to drive specific or desired outcomes. Whilst the lending of specific securities remains an important and integral part of our markets, we have also seen how the demands for financing and the creation of liquidity to support margin requirements for uncleared derivatives have changed priorities; that simple premise means that we must rethink how we support our membership and wider stakeholder community. In a similar vein, I noted with great interest the high number of delegates this year who were traditionally closer to the repo markets as opposed to tradition stock loan. This is perhaps not that surprising when you recognise that circa 40% of securities on loan are government bonds, and as market participants look at their liquidity challenges through the lens of outcomes rather than being contained by product boundaries, I would expect to see further crossover. We already have a close working relationship with our friends at the International Capital Markets Association (ICMA) who shared the location with us last week. Similarly, as the concept of using securities lending to generate and transform collateral in the context of uncleared margin rules develops further, I again see a greater need to pursue the alignment of thinking and ideas with our friends at the International Securities and Derivatives Association (ISDA).
The second theme I saw over the three days was how the digital agenda, that was at the fringes of our last event in 2019, is now front and centre of much of our work. The third day of our conference was devoted primarily to how various aspects of this broad agenda are impacting our markets. It was very encouraging to see a true mix of actual working solutions alongside concepts that are still in development. As markets chase greater efficiencies, many of which are now being looked at against the reality of CSDR settlement fines, there is no doubt that for many there needs to be a step change in thinking from a technology perspective. Frankly, more of the same will not be enough to yield the levels of efficiency now needed to fix much of our arcane settlement and trading infrastructure.
Coincidently, an independent article in the London Financial Times earlier this week argued for a major rethink on the ‘financial plumbing’ supporting the money markets. It highlighted amongst other things how balance sheet constraints on banks and dealers are preventing them from playing a full role in supporting the necessary liquidity provisions needed to prevent systemic failure. Similarly, it also sighted the lack of collateral mobility between International Central Securities Depositories (ICSDs) and other global custodians as weaknesses in the current system. On a more positive note, it highlighted how tokenization of collateral may be something of a silver bullet that could deliver tangible benefits to the industry. If nothing else, this highlights the importance of the work we are doing to create standards to support new and novel trading, settlements, and legal constructs.
From our perspective and thinking about the key outputs from Vienna, I am convinced that this agenda for the three days was not only one of our most ambitious to date, but was also our most relevant in the as we think about where we are heading, and not necessarily where we have come from.
Andrew Dyson
