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Securities Lending Market Report | June 2021

As at the 30th June collateral held with European triparty experienced price volatility. As markets have returned to a
agents was very much in line with previous historical norms period of more relative stability in the past six months the
with equites and government bonds representing 45% collateral footprint has remained constant throughout the
and 44% of reported collateral respectively. Due to the period.
way in which collateralisation works around market values Similarly, as we look in more detail at the breakdown of
rather than volumes we have in the past seen equities as a government bonds by domicile of issue, we see a familiar
proportion of the total fall away as underling markets have
picture.

Fig 16 – Securities Lending Collateral Held in Fig 17 - Government Bond Collateral held in
European Triparty European Triparty by Domicile of Issuers

Equities - 45% Europe - 50%

Corporate Bonds - 10% Asia - 31%
Government Bonds - 44% North America - 12%
Not unexpectedly European government bonds dominate Any move away from a title transfer environment to one
Other - 1% Other - 7% the collateral pool representing some 50% of all the circa where collateral is simply held by a triparty agent under a
€900 billion of government bonds held across the triparty security interest raises important questions for our markets
system. We have observed before the prevalence of and wider stakeholders. For example, and although we
Asian government bonds being used by borrowers and have advocated for some time that most if not all collateral
again JGB’s represent nearly a third of the government received by lenders is simply held as a mitigant against loss
bond collateral portfolio. Again, this highlights how our the adoption of a pledge collateral model would essentially
markets can reflect global diversity within specific regional rule out any reuse and has implications for any wider
or local settings. Finally, it is worth noting how little US discussions around collateral velocity.
governments bonds appear to be used as collateral. Consequently, we have for some time been trying to get
Notwithstanding the fact that they represent over 30% of closer to understanding to what extent our market has
all securities on-loan at the 30th June they make up only been adopting pledge collateral and what the direction of
12% of the government bond collateral. Whilst the reasons travel looks like. After working with our partners within
for this may be varied it is perhaps likely that using other the triparty community we have for the first time begun
eligible securities such as JGB’s is more efficient from a to see some colour around these statistics. Initial data
cost perspective. It is also probable that US Treasuries provided this quarter suggests that between 10% and
command a higher premium as they may be used to 15% of all business is now being conducted under pledge
support a range of transactions across global securities and arrangements.
repo markets.
Separately and discussed in more detail elsewhere in
In 2018 as part of its commitment to support the use this report we have also begun to see information flows
of global master agreements for the securities lending coming out from the Trade Repositories in respect of SFTR
industry, ISLA published a pledge collateral version of data which includes some details of the legal form of the
our existing Global Master Securities Lending Agreement transactions being submitted by market participants. Initial
(GMSLA). This provided an alternative to our traditional analysis suggest we are seeing similar levels of pledge
title transfer master agreements and allowed market collateral business being reported here as well
participants to look at concluding agreements with
counterparts in jurisdictions where legal set-off in the We know that many firms are looking at pledge collateral
event of default was not certain as well as looking at as a priority for their business models into the remainder
alternative ways to potentially manage residual RWA of this year and 2022 and we will of course monitor
charges associated with over collateralization within title developments in this area with great interest over the
transfer legal frameworks. coming months.