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Securiti es Lending Market Report | June 2023

Looking Ahead

As we look ahead to the second half of 2023 and beyond given the ever-changing macro-economic landscape it seems
increasingly diffi cult to att empt to predict the trajectory of the global markets. However, one remaining constant is the
on-going need to remain on top of the ever-evolving regulatory landscape.
At the end of July, U.S. banking regulators unveiled From a Fixed Income perspecti ve, the outlook for the
changes to the Basel III rule. The updated version of the second half of 2023 and beyond remains healthy with
„
regulati ons, known as “Basel III endgame , is expected to several factors conti nuing to drive the demand. Regulati ons
require banks to hold more regulatory capital to provision such as the Liquidity Coverage Rati o (LCR) and Net
against potenti al risk within trading books and operati onal Stable Funding Rati o (NSFR) will conti nue to drive term
processes. A ti ghtening of regulatory standards will likely acti vity, while the backdrop of elevated infl ati on will keep
see a greater emphasis on lending and borrowing trade policymakers hawkish, thus driving ongoing specials acti vity.
structures. The emergence of workable centrally cleared As always, we are very aware of market liquidity challenges,
securiti es lending models in both the US and EMEA are so adequate buff ers and potenti ally excluding a small
expected to gain momentum as market parti cipants seek subset of corporate bonds from lending availability will be
to manage a variety of regulatory binding constraints.
prudent risk management tools. Lastly, collateral mobility
Furthermore, the industry has begun preparing for will be key, parti cularly if signs of bond scarcity persist. The emergence of workable centrally cleared
changes in the standard securiti es clearing and sett lement As such, parti cipants employing a full suite of collateral
cycles. In February 2023, the US Securiti es and Exchange opti ons stand to obtain the best returns from their lending securiti es lending models in both the US and
Commission (SEC) adopted an amendment which brings programmes, with those lenders willing to deviate from
T+1 into the US market by market by 28 May 2024 (aft er the more traditi onal collateral parameters, having carefully EMEA are expected to gain momentum as
the Memorial Day long-weekend) with the Canadian Capital assessed the risk versus reward dynamic, are likely to see
Markets Associati on announcing Canada will transiti on a outsized returns versus their peers. The ability to opti mise market parti cipants seek to manage a variety
day earlier on 27 May. We expect the EU and UK to face the use of portf olio assets across competi ng needs such
regulatory pressure to adopt this change in the coming as collateral management, liquidity requirements, and the of regulatory binding constraints.
years too. Naturally, this will require increased effi ciency drive for enhanced returns will be criti cal for benefi cial
and automati on at every touchpoint in the trade lifecycle. owners seeking to navigate this complex global market
From an agent lender’s perspecti ve, accelerati ng the ti mings environment.
of when we receive sale noti fi cati ons and the speed at
which we can cover that sale through internal processing
or external recall will be crucial. Readiness remains a key
initi ati ve for securiti es fi nance industry over the coming
months, and collaborati on between industry parti cipants
will be fundamental to this success.