Reflections of the CEO

UMR | CSDR | ESG | ISLA AGM & 12th Annual Post Trade Conference

The summer is a time where most of us get away from the workplace and spend some well-deserved time with our family and friends. It is also a time as we reach a mid-year point, to reflect upon the past six months.

As the world began to come to terms with living with the global pandemic, we looked towards 2022 with a renewed sense of optimism. That optimism was somewhat short lived, as we saw a war on the continent of Europe for the first time in a generation. Not unexpectedly, financial markets reacted to the uncertainties bought by the Russian invasion of Ukraine; with uncertainty comes volatility, and in turn an impact on revenues.

According to DataLend, the global securities finance industry generated US$4.8 billion in revenue for lenders in the first half of 2022. This figure represents a 6 per cent increase from the $4.5 billion generated in the first six months of 2021. This tells me that there is still tremendous opportunity across our industry as we adapt to these changing market conditions.

Whilst time does not allow me to reprise on all the major highlights of this period, I wanted to touch upon one or two focal points that I feel encapsulate much of what we do.

At our first face-to-face annual conference in over two years in Austria last month, we talked about the apparent convergence of traditional lending activities with broader financing and collateral management activities. Institutional investors are thinking increasingly about their lending programmes in diverse ways, as they grapple with the requirements of Uncleared Margin Rules (UMR) for derivative transactions and other demands upon collateral and underlying liquidity. I believe that this direction of travel is only set to continue, and it is important that we can understand and respond to these changing market dynamics.

In February, we saw the arrival of the most severe settlement discipline regime ever seen in the form of Central Securities Depository Regulation (CSDR). Whilst much of the structural rigidity that drives fails is well known, CSDR has acted as something of a wakeup call across the industry. Notwithstanding the best efforts of many within the industry, fail rates are persistently high and if recent data is to be believed, marginally worse than this time last year. If we fail to grasp the nettle this time, I fear that our industry will become less relevant and increasingly confined to the margins of the capital markets echo systems, as other products offer similar economic outcomes with less operational friction.

Whilst recognising the problem is one thing, actually doing something about it is another. One of our most important priorities for the remainder of this year and into 2023, will be working across the industry to deliver real change in the way we think about settlement. To be frank, more of the same will not be good enough. Surely the answers to settlement finality must lie in the digital agenda therefore…

Whilst CSDR is demanding radical and novel thinking in the post trade space, the wider ESG agenda is progressively redefining how we think about securities lending through a sustainable lens. In that regard, I would sight the important and developing work that we have begun to deliver through the medium of GASLA. Many of the challenges and associated solutions around ESG are global in reach, and it is important that we collectively develop consistent and pragmatic outcomes for all of our members globally.

The final area that I wanted to touch upon, is the return of in-person events. In all honesty, when we scheduled our first regional briefing in Zurich in May, closely followed by our flagship European conference in Vienna in June, we did not know how the industry would respond. To see such high levels of engagement in terms of attendance and participation was incredibly encouraging, and demonstrated once again how strong and vibrant our collective community is. With similar regional events scheduled in Paris and Stockholm later this year as well as the ISLA AGM & 12th Annual Post Trade Conference in London, we look forward to further opportunities to meet with our members and industry stakeholders alike.

As is customary, this blog will now be pausing for the summer months and in closing, I would like to wish you a restful summer and hope that you all get the chance to spend time with your families and loved ones.

Andrew Dyson

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