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Securities Lending Market Report | December 2023

Outlook

Whilst our marketplace has always witnessed continuous evolution, oftentimes the rate of change appears to lag behind
expectations. The same most definitely cannot be said when considering the outlook for 2024, when a real, notable shift
is evident, with the influence of rising risk-weighted asset (RWA) costs driving change for all market participants.

For beneficial owners, the impact on counterparty Outside of Basel III, regulation also informs the rest of the
indemnifications due to increased regulatory cost will landscape for 2024. The opening of new lending markets
continue to dominate the discussion. As this storyline for offshore participants, particularly in Saudi Arabia and
continues to play out, it is likely that beneficial owners that the Philippines, gives cause for optimism that revenue
lend via an agent will take one of two paths in the short to opportunities will materialise for early adopters, whilst
medium term, either acknowledging and accepting this new noting that as we go to press, the short selling landscape
paradigm, or implementing measures to counter the impact in South Korea continues to be under regulatory scrutiny,
on performance and take advantage of borrower demand limiting revenue opportunities in that market.
dynamics via expanding eligible collateral schedules, trading Lastly, inarguably, the most impactful changes will be seen
with new counterparties, and accessing alternative routes- in the US; the shift to T+1 settlement may well provide Outside of Basel III, regulation also informs the
to-market.
opportunities as industry participants search for intraday rest of the landscape for 2024.
As we observe agent lenders reacting to increased RWA liquidity, but most eyes will be focused on the success of
costs, so too will the borrower community continue to the recall process in the early weeks and months of the
adapt their practises and trading strategies to improve new regime. Otherwise, SEC rule 10c-1a will take up much
their P&L through 2024. The focus here is on shifting bandwidth throughout the year as further clarification is
trading volumes into more capital-friendly structures, so received, and vendors and their industry participant clients
expect further growth in lending under Pledge collateral identify if an industry led SFTR-like approach to best
arrangement, which saw real momentum in 2023, and given practice in reporting will be required, or if the new reporting
that categories of beneficial owners may not be able to requirements will be relatively a light lift.
participate in these trades due to regulatory restrictions, In summary, the outlook for the coming 12 months is one
in and of itself this may benefit those that can. Otherwise, of a fast-evolving marketplace, the narrative of increasing
the CCP conversation was brought back to the table in RWA cost informing adaptation and possibility for beneficial
2023. Given the challenges the industry previously faced in owners, agents, and borrowers, whilst the focus from
transacting over this medium it remains to be seen whether regulators around the globe will continue to require diligent
things will be different this time around, though with the navigation and present both challenges and opportunities
cost benefit discussion evolved, amplifying the incentives for all market participants in 2024.
for interested parties to participate, the expectation is for a
clearer understanding of the landscape through 2024.