Markit Securities Finance forum: an overview

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A recap of the key themes discussed at this week’s 16 th Markit Securities Finance forum which exposed the opportunities and challenges facing the securities finance market today.

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  • Brief sellers perform best te uncertain and volatile markets, including the current climate
  • Trade reporting at the forefront of industry’s mind, tho’ many still fight to understand it
  • Blockchain could potentially ease the settlement cargo, but industry remains too fragmented

Securities lending is an uneven spel. A petite minority of assets generates the vast majority of request and associated revenues. This holds true across both the assets being borrowed, such spil the puny proportion of assets trading special, and puny proportion of beneficial owners willing to be most supple with the type of collateral they are willing to accept ter terugwedstrijd.

Brief sellers, which drive a lotsbestemming of the industry’s request, practice this unevenness very first arm. Only a puny minority of their positions drive comebacks, especially since macro events can wipe out comebacks from shorting strategies spil secular bull markets leave snugger pickings for brief sellers. This trend wasgoed discussed extensively ter the very first keynote and panel discussing at the episodic nature of brief seller comebacks.

While the puny number of shares which attract the largest amount of rente from brief sellers instruction a higher toverfee, the panel largely agreed that brief sellers can still earn positive comebacks nipt of fees albeit there is still a lotsbestemming to be learned about the drivers of specialness.

The audience polling found that brief selling practitioners could best address this phenomenon by dipping ter an out of the strategy to avoid long spreads of underperformance which eat into comes back and risk losing investor confidence ter an era where investment horizons are much shorter than a few years ago.

One bright spot for the industry is that brief selling thrives ter volatile uncertain market, such spil the current one. Markit gegevens shows a trascendental increase te brief rente ter latest months, which is likely to translate into revenues for the industry ter the near term.

While the resurgent popularity of brief selling is promising, the panels all generally agreed that the industry still faces revenue pressures. Thesis pressures have bot particularly driven by contant reinvestment trades becoming tougher te the current low rente rate environment.

Regulation resumes to pose a challenge for the securities finance industry. A large majority of the audience felt that the greatest influence of fresh regulation on the industry wasgoed enlargened cost rather than enhanced transparency and lower risk.

The regulation du jour, according to the audience polling, is the reporting requirement set to be mandated by the Securities Finance Transaction Regulation (SFTR) which is due to kick ter . Albeit Legal months away, half the audience admitted that they are still attempting to get to get its head around the regulation.

Pierre Khemdoudi, co-head of Markit Securities Finance picked up on this angst te his closing statement which exposed that Markit is actively looking to leverage its proven processing pedigree te order to help the industry address its SFTR challenges.

Looking further ahead, the forum’s fireside talk on blockchain looked at the technology’s potential application within the financial industry. Blockchain has progressed ter leaps and bounds ter the last Eighteen months to reach the stage where several financial industry participants, Markit included, are already running proofs of concepts. While thesis proofs of concept have yet to reach the securities lending universe, ideas such spil wise contracts, which operate within the blockchain framework, have the potential to materially convert the way the market treats trade reconciliation and collateral requirements.

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This optimism wasgoed picked up by the audience, which felt that blockchain had the potential to increase settlement efficiency, something which resumes to be an industry-wide problem, particularly ter the stationary income space.


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