Big Things Have Small Beginnings

The primary source of global securities finance news and analysis Issue 283 03 August 2021

Big things have small beginnings Rob Goobie, the Global Peer Financing Association’s chair, looks back on the GPFA’s successes and where it’s headed as the world returns to normal

Automating Swaps Work Flow

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Lead Story 3

EquiLend takes majority stake in Stonewain Systems

EquiLend, technology provider to the Stonewain will remain as a standalone legal Armeet Sandhu, Stonewain’s CEO, securities lending, collateral and swaps entity with independent management and says: “Stonewain has been dedicated to industries, has purchased a majority share in will continue to support all existing client and developing cutting-edge solutions in the Stonewain Systems. partner relationships. securities finance marketplace for over a decade, which aligns with EquiLend’s ethos This deal builds on a partnership between The two companies indicate that their continuing of innovation and driving efficiencies for the the two companies that has been in place partnership aims to meet unprecedented market. Our partnership with EquiLend has since February 2019, which enables demand in the securities finance industry demonstrated that market participants are securities finance market participants to for automation, rapid modernisation, service eager for innovative solutions that tackle their manage their books of business on a single, efficiency and reduced cost. technology challenges and that the combined integrated platform. might of our two organisations can help to EquiLend chief executive Brian Lamb says: alleviate those headaches.” This brings together Stonewain’s Spire “Our increased commitment to Stonewain technology with EquiLend’s portfolio is a strategically important development for EquiLend’s global head of sales and client of trading, post-trade and market data EquiLend in a year that also represents a relationship management Dan Dougherty solutions for the securities finance industry, significant milestone for the business, as we says: “[the] partnership with Stonewain was including EquiLend’s NGT electronic celebrate our 20th anniversary in the industry. driven by two key factors: the opportunity in trading platform. the market to transform a highly antiquated, “We are proud of the opportunities [the underserved corner of securities finance in The combination, EquiLend Spire, offers partnership] has presented on EquiLend Spire books and records solutions and the natural a modular and scalable securities finance [and] look forward to everything that EquiLend synergies between Stonewain’s system and solution for compliance, reporting, risk and Stonewain can achieve together as a EquiLend’s suite of trading, post-trade, market analysis, accounting, positions and trading. closer team,” adds Lamb. data, clearing and regulatory services.”

www.securitiesfinancetimes.com Inside this issue

Lead news story EquiLend takes majority stake in 3 Stonewain Systems Latest news Capco and AccessFintech partner 6 over data solution Latest news Eurex launches deliverable cross 18 8 currency swaps and OTC FX clearing Cover story Big things have small beginningsx Latest news Beneficial owner-run, peer-to-peer securities lending network GPFA has Q2 financial results: BlackRock, weathered the pandemic and come out the other side to celebrate its 12 BNY Mellon and State Street one-year anniversary SFT reporting A year into SFTR: the devil remains in the detail As we reach the first anniversary of implementation of the Securities Financing Transactions Regulation (SFTR) for the first cohort of firms, it seems an appropriate time to ask ourselves what we have learnt. 20 Jonathan Lee, senior regulatory reporting expert at Kaizen Reporting, shares his assessment Q2 performance Quarterly securities finance revenues hit three-year high Q2 revenues grew by 13 per cent YoY to US$2.85 billion, with lending revenues from exchange-traded products having their best quarter on record. IHS Markit’s Sam Pierson 22 dissects the numbers

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Capco and AccessFintech partner over data solution

Capco has partnered with AccessFintech to solutions to encourage faster workflow with the Synergy Network. enhance the engineering and delivery of the adoption and change management. latter’s data management and workflow solution. Owen Jelf, partner and global head of capital It will also assist companies to navigate markets at Capco, says: “By bridging the The two fintech companies noted the challenges around operations and regulatory gap between legacy and modern systems, importance of banks, brokers, custodians and compliance, particularly the approaching innovative solutions such as the Synergy buy-side firms ensuring they provide efficient Central Securities Depositories Regulation Network accelerate those journeys and deliver technology platforms in the current competitive (CSDR) regime, Interbank Offered Rate cost effective and highly controlled rules- regulatory environment. (IBOR) reconciliation, pre-matching and based process environments.” settlements, and cash payment affirmations. This can be difficult for some as legacy systems Boaz Zilberman, executive vice president of carry fragmented data and time-consuming In the partnership, AccessFintech’s Synergy business development at AccessFintech, adds: manual processes, causing increased costs Network has capabilities to extend and enrich “We are already successfully processing more and liquidity risk. Therefore, it is also important data, as well as synchronise workflow and enable than a billion transactions a month. Coupling for companies to modernise their internal technology-driven operations transformation for Capco’s industry benchmark technology and systems and processes. transaction lifecycle management. operations change management and delivery expertise with our Synergy Network and platform Capco and AccessFintech’s partnership aims Capco’s experience in transformation projects is an important accelerator of our clients’ to address this through joint engineering will streamline client operations integration operation and technology transformation.”

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Firms moving to consolidate Other key considerations for firms were data lessons from previous regimes such as EMIR regulatory reporting under harmonisation and improving overall data and MiFIR, and SFTR appears likely to be the single platform quality, where the survey indicates that “the model on which future regulatory reporting market as a whole needs to commit in order requirements are based, the report said. A majority of SFTR survey respondents — to find a solution”. banks, asset managers, hedge funds and Eurex launches deliverable brokers — are planning to consolidate their It also finds that firms need to work on cross currency swaps and various regulatory reporting requirements improving the quality and accuracy of their OTC FX clearing under a single platform in the near future. reporting, particularly on collateral data, to meet regulators’ ultimate objectives of Central counterparty Eurex Clearing has gone Following the go-live of the Securities increased transparency. live with its clearing service for deliverable Financing Transaction Regulation (SFTR) cross currency swaps and OTC FX. in July 2020, Pirum and IHS Markit’s SFTR Importantly, the report said that while fines Post-Implementation Industry Survey for SFTR non-compliance or inaccuracy The transactions are cleared and settled recorded over 70 per cent of respondents have not been handed out to date, regulators on a net basis across cross currency saying they are aiming to consolidate their still expect firms that are in scope to ensure swaps and OTC FX, significantly reducing various regulatory reporting requirements. they are reporting accurately and promptly. capital requirements under SA-CCR, the standardised approach for measuring The benefits of outsourcing regulatory UTI pairing was probably the major challenge counterparty credit risk. reporting to third parties, in terms of speed going into SFTR, according to respondents. and convenience of roll out, as well as However, a year after SFTR went live, 80 Eurex Clearing guarantees settlement in the upside of a collaborative approach to per cent of firms say they have been able CLSClearedFX, which provides liquidity and implementation and interpretation of new to achieve all or most of their pairing. By funding benefits and mitigating settlement risk. rules, were clear, the survey showed. contrast, the survey says that only 28 per cent of respondents are satisfied with their CLS is the leading provider of settlement But for “firms that have already invested UTI pairing for EMIR several years after services for the global foreign exchange market. heavily in in-house technology to meet implementation, which the report states is “a regulatory reporting needs, it may be a more testament to the work done by the market”. German bank Commerzbank joined J.P. difficult decision to abandon these in favour Morgan and Morgan Stanley as clearing of a third party,” the survey says. On a positive note, regulators have learnt members to enable the completion of

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testing and go-live of the service, following a our side to innovate in the FX market, where financing and credit portfolio trading successful test phase. we received significant support from Sernova Charles Bristow comments: “Cross currency Financial to structure our clearing workflows swaps play an important role in the flow of For Eurex and its parent company, Deutsche across different central clearing parties in the capital through the international markets. Börse, the launch cements the group’s most efficient way. We are delighted to be part Moving to a centrally cleared model is a ambition to support a wider move from OTC of this service.” significant moment for the asset class as to central clearing. it reduces complexity, enhances efficiency J.P. Morgan head of rates, fixed income and increases market resilience.” Eurex Clearing CEO Erik Müller says: “Central clearing and guaranteed settlement for cross currency swaps in CLSClearedFX is a world first. We are pleased to have launched this together with CLS to deliver capital, liquidity and settlement benefits — providing further resilience to the market.”

CLS global head of product Keith Tippell says: “The addition of Eurex Clearing to CLSClearedFX, our settlement service for cleared FX and derivatives, demonstrates the benefits we can deliver to market participants by collaborating with other market infrastructures to further mitigate systemic risk.”

OTC FX clearing includes FX Spot, FX Forward and FX Swap matched on 360T, Deutsche Börse’s global FX unit. The launch of non-deliverable forwards (NDF) clearing is scheduled for the second half of 2021. Eurex Clearing will then be offering clearing services for both deliverable and non- deliverable FX products. This will provide further capital and operational efficiencies Say goodbye to tedious tasks. to clearing members, leveraging the same connectivity for both product groups. Say hello to potential.

Wouldn’t Securities Finance be simpler with more integration and automation? Commerzbank divisional head of interest rates, Shouldn’t the day be about opportunities, not mundanities? currencies and commodities trading Jochen It’s time to change the way we work. Litzinger adds: “Eurex Clearing has addressed significant complexity in implementing clearing and guaranteed settlement of these products, www.tradingapps.com providing capital savings and operational efficiencies. It has been an important project on

Securities Finance Times 447894SCGBM_SC7894SCGBM_SC BBrandrand 44.0_SF_Eagle_SLT.0_SF_Eagle_SLT AAsiasia HHandbook_240x170w_4andbook_240x170w_4 MMar_p.aiar_p.ai 1 223/2/213/2/21 110:100:10 AAMM News Round-Up 12

Morgan Stanley COO for macro products Looking quarter-on-quarter, investment invest for the future positions our platform Marco Gregotti says: “We support the growth advisory, administration fees and securities to better serve clients and generate more of post-trade services for currency swaps lending revenue increased $165 million from consistent organic growth. In sustainability, and FX markets and are pleased to be part the first quarter of 2021, driven by overall we are investing in products, data and of the Eurex Offering.” business growth and the positive impact analytics and technology to help investors of market volatility and foreign exchange capture the opportunity and manage the Q2 financial results: movements on average AUM — plus the risks presented by sustainable factors. BlackRock, BNY Mellon effect of one additional day in the quarter. This is resonating with our clients and we and State Street Revenues were partially offset by higher generated $35 billion of sustainable net yield-related fee waivers on certain money inflows in the quarter.” BlackRock generated securities lending market funds. revenue of US$140 million in the three State Street’s securities finance revenue months to 30 June, down from $210 On the whole, the asset manager saw increased 10 per cent quarter-on-quarter to million in the second quarter of 2020. This $81 billion of quarterly total net inflows $109 million and was up 18 per cent YoY, primarily reflects lower spreads and is into its investment fund products, driven primarily driven by higher client balances partially offset by higher average balances by continued momentum across its fund and partially offset by lower spreads. These of securities on loan. platform. This figure takes into account a $58 figures reflect the firm’s wider business — billion low-fee institutional index outflow from net income was up 10 per cent YoY from Quarter-on-quarter, the asset manager’s a single client. The fund house experienced $694m to $763m and sequentially [QoQ], securities lending revenues rose $13 million $63 billion in net inflows during Q2 into its revenue was up 47 per cent, from $519m from a Q1 2021 figure of $127 million. actively managed products. to $763m.

BlackRock’s revenue from investment BlackRock said that a 32 per cent increase State Street chairman and CEO Ron advisory, administration fees and in its revenue year-over-year reflects strong O’Hanley says: “Our second quarter securities lending revenue increased organic growth, higher performance fees results reflect the successful execution $791 million YoY, primarily driven by and a 14 per cent increase in technology of our strategic priorities. We delivered the positive impact of market volatility services revenue. record fee revenue with continued expense and foreign exchange movements on discipline, driving considerable pre-tax average AUM and strong organic base BlackRock chairman and CEO Laurence margin expansion and earnings growth in fee growth. Fink says: “Our longstanding approach to the second quarter, thus demonstrating

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meaningful progress toward our medium- interest revenue, intraday credit fees and Global PSSL issues term targets.” clearance volumes, but is partially offset securities finance value by higher tri-party collateral management chain transparency For BNY Mellon, the bank’s market value balances. The sequential increase — recommendations of securities on loan at period end, which $281m to $283m — largely reflects higher represents the total amount of securities tri-party collateral management balances, The Global Principles for Sustainable on loan in the agency securities lending although this is partially offset by lower Securities Lending (Global PSSL) group programme managed by the Investment clearance volumes. has issued recommendations designed to Services business, was up 19 per cent YoY boost transparency in the securities lending to $456bn — and up 2 per cent compared to BNY Mellon CEO Todd Gibbons says: value chain. the previous quarter to $456bn. “Fee revenue was up 4 per cent, or 10 per cent excluding the impact of money Global PSSL’s seven draft recommendations, BNY Mellon’s clearance and collateral market fee waivers, reflecting the published yesterday and open for management business, as part of its benefit of higher market levels as well consultation until the end of August investment services business, saw a year- as continued organic growth, driven by 2021, detail the roles stakeholders can over-year decrease — from $295m to higher client activity levels and net new play in the sustainable securities lending $283m — which primarily reflects lower net business momentum.” value chain.

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Securities Finance Times News Round-Up 15

Designed to increase transparency in the Roelof van der Struk of Dutch pension fund markets. Global PSSL works towards the securities lending market and provide a PGGM and Global PSSL CEO Radek Stech former whilst engaging the latter.” means for continuous review and evaluation and form part of a broader review with Global through voluntary collaboration, the PSSL contributors and regulators in Africa, They add: “These recommendations are recommendations propose a monitoring role Australia, the UK and the US. the fruit of dedicated long term work on the for regulators and central banks as well as widespread adoption of sustainable working international organisations. Van der Struik and Stech released a practices. This alignment and cooperation joint statement on the recommendations: hold tangible value for all parties along the They also provide a role for Global PSSL “Sustainable securities lending can add securities lending value chain.” as a guardian of the public interest for value to the owners of capital and the sustainable securities lending with each broader sustainable finance agenda. Global PSSL is a not-for-profit social enterprise recommendation, according to Global PSSL, that provides a hub for all key stakeholders designed to be “forward-looking, unifying “Fragmented and self-serving securities to advance sustainable securities lending, and inclusive, transparent, dynamic, and lending may only add value to certain best- and the broader global sustainable finance aligned with Global PSSL policy themes.” informed and sophisticated stakeholders, market, through market leadership, research and, in turn, impede progress towards and education, international collaboration, The recommendations were drafted by a wider community supporting financial and tangible impact.

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FCA publishes final rules EBA launches consultation US Federal Reserve to reinforce investor for identifying shadow establishes two new protection in SPACs banking entities standing repo facilities

On 30 April, the FCA consulted on The public consultation on draft The US Federal Reserve’s open market proposals to remove the presumption regulatory technical standards (RTS) committee has established two standing of suspension for SPACs that meet details the criteria for identifying shadow repo facilities to support the effective certain criteria. banking entities. implementation of monetary policy and smooth market functioning. The proposed changes were designed Entities that offer banking services and to provide an alternative approach perform banking activities as defined in These facilities — a domestic standing for SPACs that must provide detailed the RTS, but are not regulated and are repo facility (SRF) and a repo facility information about a proposed target to not being supervised in accordance with for foreign and international monetary the market to avoid being suspended. the regulated framework, are identified as authorities (FIMA) — will serve as Read full article online shadow banking entities. backstops in money markets. Read full article online Read full article online

SIX expands its Wematch reaches $100bn in Citi launches real-time international custody ongoing notional balance liquidity sharing in services reach to US Asian markets The multi-asset web-based platform René Haag, former SIX senior relationship was created in 2017 and has since Citi’s new real-time liquidity sharing manager, will lead the new SIX SIS US had consistent growth in its ongoing solution is responding to companies’ need office; she has an international wealth notional balances. to improve the efficiency of their liquidity management background in both Europe management and working capital. and the US. Shane Martin, head of sales for securities financing at Wematch, spoke to SFT Citi says the solution enables treasury SIX delivers securities services to banks, earlier this month, revealing a $93 billion divisions to mobilise liquidity and fund private banks, wealth managers, broker- high in June, more than a 4-fold increase intraday payments across multiple entities dealers and other clients across the from $20 billion in July 2020. and accounts in real-time without the need global financial sector. to physically fund these accounts.

Read full article online Read full article online Read full article online

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For more information contact Justin Lawson on 020 8750 0929 or email [email protected] Beneficial owners 18

Big things have small beginnings

Beneficial owner-run, peer-to-peer securities lending network GPFA has weathered the pandemic and come out the other side to celebrate its one-year anniversary. Rob Goobie, GPFA chair and AVP, collateral management, Alex Pugh Healthcare of Ontario Pension Plan (HOOPP) looks back on the reports Association’s successes and where it’s headed as the world returns to normal

The benefits of sticking together and picking the brains of those in Ontario Pension Plan (HOOPP), State of Wisconsin Investment different but adjacent silos are clear. And thanks to telecommunications Board (SWIB) and Ohio Public Employee Retirement System technologies, it’s never been easier to connect with and learn from (OPERS), and with assets of just under $1tn — the Association has peers who face similar challenges and opportunities. now grown to almost 20 members, with assets approaching $7tn.

The GPFA, the Global Peer Financing Association, a club composed of The GPFA, which recently welcomed US-based insurance company global beneficial owners engaged in the securities finance industry, is Pacific Life as its newest member, has members based in North taking stock after its first year in action. The Association’s aim is to boost America, Europe, Asia, and Australia and beneficial owners across peer-to-peer securities finance trading through a dynamic and transparent the globe are lining up to join. marketplace, liquidity management and collateral management. Last year, the GPFA welcomed three new members, including its first From humble beginnings with four founding members — California Australian pension fund. The California State Teachers’ Retirement Public Employees’ Retirement System (CalPERS), Healthcare of System, Australian Super — Australia’s largest superannuation and

Securities Finance Times Beneficial owners 19

pension fund — and Thrivent Financial, a Fortune 500 not-for-profit while peer-to-peer trading and education is a core reason GPFA organisation, were the first new members since the group formed in was founded, “our members are quickly realising the broader July 2020. application of having a group of like-minded asset owners to discuss many other topics related to both securities finance and AustralianSuper associate portfolio manager, FICC, Michael other investment disciplines”. Fitzsimmons said GPFA membership has afforded Australia’s largest superannuation and pension fund an invaluable opportunity Bright future to regularly engage with large, sophisticated global peers. “Given our geographic location, this is challenging at the best of Looking ahead, GPFA anticipates an increasing focus on times, and impossible in the light of current travel restrictions,” education, discussions and development of best practices and Fitzsimmons said. industry advocacy for issues important to beneficial owners. “Our approach is to use existing market infrastructure while According to Fitzsimmons, the GPFA has facilitated “detailed and taking a lead in shaping our environment and industry,” said a collaborative forums” covering topics relevant to asset owners, such GPFA spokesperson. as the design and best practices of securities financing programmes, management of globally implemented regulations like UMR and Another priority is to deepen the relationships among the membership. LIBOR and peer-to-peer financing capabilities. Growth is not just about increasing the number of members, notes the Association, it is also about becoming increasingly useful to Critical Mass those members.

In a letter commemorating the one-year anniversary of the “We are focused on formalising how we operate and are Association, GPFA chair Robert Goobie says he is “encouraged” by developing policies and procedures to support the Association’s members who have expressed enthusiasm for the platform and its work with members.” Being a new organisation run by volunteers opportunities for “learning and growth”. with day jobs, Goobie said, “we are also working to find ways to manage the administrative portion of GPFA so that our “The importance of this has never been greater, especially amongst communications and structure continue to meet the needs of our beneficial owners who are relatively new to financing and liquidity expanding membership”. management,” Goobie said. With interest rates expected to stay low for the foreseeable future, “it is all the more critical that we The focus in expanding the organisation will be to extend membership help organisations grow their financing business and bring these among engaged buy-side market participants, while remaining functions to the heart of their portfolio construction process”. committed to why the Association was formed: to deliver value to its beneficial owner membership. Outside of the beneficial owner community, GPFA says it has filled an “important need” for many market participants such as agent Even more important, it says, are the steps to foster organic lenders and other industry associations, with benefits of membership communication and sharing of best practice across its members — seen across the sector. discussions are member-led and engage with real-time challenges and opportunities confronting its member organisations. Through regular sub-group meetings, the Association has provided a forum for the exchange of information, ideas and best practices on a Regarding the pandemic, Goobie said the GPFA was “delighted to diverse range of topics, including technology, collateral, trading and find ways to connect with new members virtually” and to establish other buy-side issues, with input from over 60 individuals pitching in a strong rapport with one another. Just how “fluidly the group has remotely across the world. grown and connected with one another — especially across all major time zones” was impressive, he commented. Nonetheless, the Goobie told SFT that GPFA “aims to be the global voice and forum Association is looking forward to gathering in person at its annual for beneficial owners engaged in securities finance”, and that member meeting in 2022.

www.securitiesfinancetimes.com SFT reporting 20

A year into SFTR: the devil remains in the detail

As we reach the first anniversary of implementation of the Securities Financing Transactions Regulation (SFTR) for the first cohort of firms, it seems an appropriate time to ask ourselves what we have learnt. Jonathan Lee, senior regulatory reporting expert at Kaizen Reporting, shares his assessment

In spite of the pandemic, and some would say against the odds, the Data proves to be ‘valid but wrong’ industry delivered and should be given credit for doing so in such difficult circumstances. This can be seen in the trade repository One of the biggest issues highlighted during the first year is that acceptance rates, which have been far higher than many expected. the majority of reported activities, while passing validation, are in However, before we get too carried away, we must remember that fact inaccurate. This is what at Kaizen we call the ‘valid but wrong’ producing valid SFTR reports is the easy part. problem. A staggering 93 per cent of SFTR reports tested by Kaizen

Securities Finance Times SFT reporting 21

for the first time exhibit errors and questionable population, 76 per cent in the EU and 86 per cent in the UK. In a recent Kaizen typically reported with valid (they pass trade repository validation webinar, only 32 per cent of participants polled appreciated the rules) but wrong data. ineffectiveness of the trade repository reconciliations (selecting the level of TR reconciliation at 0-25 per cent). Data in the public domain is low grade but informative Second, SFTR was so ambitious in its data reporting requirements that a large proportion of reporting counterparties The public data published weekly by the trade repositories did not, and still do not, have enough reference data or static appears to indicate under-reporting and double counting. In data to complete a report. Therefore, much of the data is sourced spite of aspirations, this data also holds very little value to the from third parties, not the reporting firm’s books and records, and industry in terms of making markets less opaque or countering is of mediocre to poor quality. This data is far below the standard asymmetries of market data. Under-reporting, especially of required to ensure systemic risks are controlled and that market collateral, is a problem and one likely to come under greater manipulation is detectable. regulatory scrutiny. So, despite a start that should be applauded, there is still work To report completely and accurately, reporting counterparties to do. As we head into the second year, firms should focus on need the specific details. the completeness and accuracy of their own reporting. But these efforts should not be at the expense of resources devoted to We also identify a lack of clarity in areas such as bilateral margin addressing the challenges of trade repository reconciliation. reporting, collateral re-use and cash reinvestment reporting — and the reporting of commodity financing transactions has Regular, periodic, full universe quality assurance through led to an apparent lack of reports covering these areas. In regulatory testing will provide a significant advantage in meeting spite of repeated industry presentations prior to go-live about the SFTR compliance challenge. the significance of bilateral margining for repo, this has proven something of an afterthought in the reporting taxonomy.

Trade Repository reconciliations are far from perfect

The principal mechanism regulators put in place for promoting data quality under SFTR is the trade repository reconciliation. The overarching concept is that if both firms submit reports directly from their books and records, then trades and post-trade lifecycle events should ultimately match. If both sides agree, this should provide assurance that the data is correct. However, this has proved to be rather a naive premise for two key reasons. Jonathan Lee

First, the vast majority of SFTR reports are single-sided and not Senior regulatory subject to reconciliation. According to DTCC, the Depository reporting expert Trust and Clearing Corporation, these figures currently stand at Kaizen Reporting

www.securitiesfinancetimes.com Q2 performance 22

Quarterly securities finance revenues hit three-year high

Q2 revenues grew by 13 per cent YoY to US$2.85 billion, with lending revenues from exchange- traded products having their best quarter on record. IHS Markit’s Sam Pierson dissects the numbers

Global securities finance revenues totalled US$2.85 billion in Q2 21, a 13 caused equity finance revenues to drop off sharply. Whether 2021 per cent YoY increase. This revenue growth made Q2 the best quarter for repeats the summer slowdown of 2020 remains to be seen. However, securities finance revenue generation since Q2 2018. some of the Q2 revenue drivers are likely to persist into Q3.

Following a boom-and-bust first quarter for equity specials, special APAC equity revenues have grown by 25 per cent YoY to US$472m, with balances increased steadily during Q2, driven by US equities and each month during Q2 delivering a YoY revenue increase of at least 19 emerging markets in APAC. Borrower demand for ETFs continues to per cent. The upswing has been driven by the resumption of short selling boost returns, particularly for credit and emerging market products. in South Korea, along with increasing borrower demand in Taiwan and Hong Kong SAR. Equities Revenue growth in the region is partly the result of a light YoY comparison, Global equities delivered US$2.3 billion in revenue during Q2 21, a 16 with short sale bans and lower balances coming in the wake of the per cent YoY increase. The second quarter built from a slow start in April, Covid-19 crash; revenues for Q2 fell 1.4 per cent short of the Q2 2019 the weakest month so far this year for revenue generation, before returns return. Hong Kong SAR’s equity finance revenues exceeded those of rebounded strongly during May and June. Q2 was the third consecutive Japan, as the primary equity market in the region in terms of quarterly quarter to deliver QoQ revenue growth, starting from the 2020 low-point revenue generation, for the first time since Q4 2015. observed in Q3. America’s equity finance revenue in Q2, at just over US$1 billion, In 2020 a summer slow-down in markets activity, particularly in August, reflected a 3.5 per cent YoY increase and a 5 per cent sequential (ie

Global securities finance snapshot - q2 2021

Securities Finance Times Q2 performance 23

QoQ) increase. June was the most successful month during Q2 for compared with $8.7 billion in Q1 and $7.8 billion in Q2 2020. revenue generation, but the only month to see a YoY decline in returns as a result of particularly strong returns 12 months previously. The uptrend For the Americas, equity special balances declined by 3 per cent in revenue growth within the quarter was driven both by increasing total compared with Q1 but the shortfall was entirely the result of the January on-loan balances and an increasing portion of balances with high-fees. short squeeze in hard-to-borrow shares. EMEA equity special balances US equity finance revenue of US$979 million in Q2 reflects a 7.6 per cent declined by 42 per cent YoY, with the shortfall primarily the result of YoY increase. In contrast, Canada’s equity revenues declined by 29 per German equity special balances being consistently high in 2020. Specials cent YoY to US$84 million. balances for ADRs surged in late-2020 and early-2021 on the back of outsized borrower demand for Futu Holdings. Subsequently, ADR special EMEA Q2 equity finance revenues of $494 million reflect a 17 per cent YoY balances declined in Q2 following the wrap-up of the Futu trade, though increase, with June the only month during Q2 to record a YoY revenue overall borrower demand for depository receipts remains strong. decline. This YoY increase was driven particularly by the reinstatement of dividends, which had been suspended or reduced in 2020. However, Exchange Traded Products EMEA Q2 revenues were down by 30 per cent compared with Q2 2019. The French equity market delivered the most revenue among EMEA Global exchange-traded product (ETP) revenues totalled US$171 million markets in Q2, overtaking the German market (which led Q1). for Q2, a 63 per cent YoY increase. Loan balances set a new quarterly average high of $92 billion, reflecting increased use of these products for Equity on-loan balances with positive spreads averaged US$1.2 trillion hedging. Lendable asset values also set a new all-time quarterly average in Q2, a 29 per cent increase YoY, largely driven by recovering equity high of $444 billion. market valuations over the last year. Despite loan balance growth, global equity utilisation has resumed a multi-year downtrend, which took a brief Fixed income products generated 39 per cent of Q2 revenues, up from 27 pause amid the Covid-related sell-off in 2020. The Q2 average global per cent in Q1. US listed products generated 80 per cent of Q2 revenues, equity utilisation of 3.6 per cent is the lowest for any quarter on record. up from 74 per cent in Q1. APAC ETP revenues declined by 32 per cent YoY for Q2, but that was partly the result of strong results in 2020 — Global equity special balances rebounded in Q2, following a year-to-date revenues only contracted slightly QoQ compared with Q1. EMEA ETP low point observed in March. APAC equity special balances recorded the revenues increased 3 per cent YoY. most notable uptick in Q2, owing to the reinstatement of short selling in South Korea and a general upturn in demand for hard-to-borrow shares Fixed Income in Hong Kong SAR, Taiwan and Malaysia. Fee-spread revenues for global sovereign debt totalled US$398 million Average APAC equity special balances averaged $11.4 billion in Q2, for Q2, a 1 per cent YoY decline. Borrower demand for government

Equity finance revenue by region Global special balances by region

www.securitiesfinancetimes.com Q2 performance 24

bonds remains robust, with $1.26 trillion in positive-fee global balances Q2 global securities finance revenue history for Q2 reflecting an 35 per cent YoY increase. The $330 billion increase in positive-fee balances is the result of a $247 billion YoY increase in total on-loan balances. along with $82 billion moving from negative to positive fees.

Total Q2 government bond lending revenues for agency programmes, which amounted to $408 million including reinvestment returns and negative fee trades, declined by 18 per cent YoY. Reinvestment revenue Conclusion declined by 47 per cent YoY, while fee spread revenues increased by 25 per cent YoY. Following the decline in interest rates during the latter half Global financing revenues for Q2 were in the middle of the range of Q2, a marginal decline in government debt on-loan balances may be observed over the preceding five years. However, it was the strongest the start of an unwind of trades predicated on rate path and yield curve. second quarter for equity finance revenues since 2018. The upswing in However, balances remain relatively high in historical terms. equity revenues was driven by the pick up in APAC specials, dividend reinstatement in EMEA and IPO/SPAC-related demand in the US. For corporate bonds, fee spread revenues totaled $121 million for Q2, a 15 per cent YoY increase. Corporate bond borrower demand Taken together, the drivers for equity borrowing demand that were continues to increase — $229 billion of daily average balances in Q2 anticipated coming into 2021 are largely playing out and delivering represented a 37 per cent YoY increase and the highest quarterly returns. Heading into the second half of the year, APAC specials, average since Q3 2008. Total Q2 corporate bond lending revenues for ETP demand and US SPACs and IPOs appear likely to continue to agency programmes, at $115 million including reinvestment returns and boost returns. negative fee trades, declined by 29 per cent YoY. For fixed income, the big picture is drawn from greater loan balances During Q2, reinvestment revenue declined by 59 per cent YoY while fee and narrower spreads. Revenue from rates-related trades may decline, spread revenues increased by 19 per cent YoY. While corporate bond though there is potential for credit risk to drive borrowing demand for loan balances are historically high, there has been a lack of hard-to- corporates, which could result in hard-to-borrow credits becoming a H2 borrow issues. To the extent that credit stress increases in the second return driver. half of the year, the asset class could get back to delivering stellar lending returns — as they did in 2018, the strongest year for corporate H1 revenues of $5.5 billion reflect a 14.3 per cent YoY increase in bond lending since 2008 in revenue terms. fee-based revenues.

Daily ETP finance revemues by asset class

Sam Pierson Director IHS Markit

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MarketAxess, MUFG, LCH and JonesTrading latest hires

CIBC’s Will Cutts has been promoted to director of global markets, delta one and synthetic prime, based in London.

For over two years prior to this, Cutts was based in New York where he set up a multi- asset global synthetic prime brokerage and delta one trading product for CIBC. In this role, Cutts was responsible for the technology selection, implementation and connectivity to all of the bank’s downstream sub-systems, support functions and risk management processes.

Additionally, in this role Cutts was responsible for the deployment of new products to London, New York and Toronto, as well as adding new institutional clients and generating new revenue streams to benefit the firm’s prime finance, equity derivatives and wider global equities business.

Prior to CIBC, Cutts spent two-and-a-half years at Capital Markets Consulting as a consultant for the Americas, Asia Pacific and Europe. At Capital Markets, Cutts worked on assignments in the delta one, derivatives, prime finance and corporate treasury business, including the prime finance platform and STP for securities finance products.

Starting in 2012, Cutts spent five years at BNP Rob Sackett joins JonesTrading Paribas in New York as a senior prime finance sales and trader of equity derivatives and Sackett stepped down from his position as he was head of specials trading for US securities financing products to institutional Wells Fargo’s head of securities lending in equity finance, managing trading for prime investors for the Americas, Asia and Europe, June. He held this role for six years, developing brokerage clients and the bank’s proprietary Middle-East and Africa (EMEA). the company’s prime services activities before business. joining JonesTrading on 19 July 2021. In the 1990s, Cutts spent seven-and-a-half JonesTrading is an equity trading firm in the years working for Salomon Brothers, where Sackett has more than 25 years of US, with offices also in London and Toronto, he was initially a securities lending and repo experience in prime brokerage and equities creating liquidity and trading blocks for trader, before running the synthetic equity financing including 16 years at Citi, where institutional accounts.

Securities Finance Times Industry Appointments 27

finance business for Europe, Middle-East and heads the GSLS business in New York. Africa, as well as some Asia-Pacific markets. In a career spanning 30 years, Aris spent 19 of SMBC Nikko Securities these at Deutsche Bank, working his way from a has hired William Liang as securities lending trader at its Hong Kong office, equity finance trader for its to director, heading the Bank’s EMEA & APAC headquarters in Tokyo. agency securities lending business in London.

Liang will report to Makoto Yamada, the Aris previously worked for five years at global head of equity trading, and functionally Dresdner Kleinwort, where he led the equity to Toshimitsu Shimazaki, the local head of trading book for agency securities lending, and equity finance. for four months at State Street as an agency securities lending trader. It is a hybrid role which includes both securities lending trading and synthetic swap LCH has appointed Rohit book building. Verma as head of its Asia Pacific business. Publisher: Justin Lawson With more than 10 years of experience as a [email protected] finance trader, Liang worked at Citi from 2014 Based in Singapore, Verma will lead +44 (0) 208 075 0929 to 2021 as prime finance trader. the clearing house’s sales and business Group editor: Bob Currie development activities in the Asia Pacific [email protected] Before joining Citi, Liang spent three years at region, including its operations in Singapore, +44 (0) 208 075 0928 Mizuho Securities and two years at Credit Suisse. Sydney and Tokyo, and will be part of the Senior reporter: Maddie Saghir company’s sales leadership team. [email protected] MUFG Investor Services adds +44 (0) 208 075 0925

Jim Aris, former Deutsche He assumes the role following Kate Birchall’s Senior reporter: Jenna Lomax Bank employee, to the team relocation to London earlier in 2021 to become [email protected] +44 (0) 208 075 0925 as an executive director. LCH head of sales. Reporter: Alex Pugh Aris will head equity trading for agency lending Verma moves to LCH from Citi, where he [email protected] +44 (0) 208 075 0926 solutions at the MUFG’s London office and held senior positions in the futures, OTC becomes one of a number of ex-Deutsche Bank clearing and FX prime brokerage areas, Reporter: Carmella Haswell [email protected] hires to make the move to the Japanese bank. most recently as APAC head of OTC clearing +44 (0) 208 075 0925 and FX prime brokerage. Tim Smollen has attracted several of his former Reporter: Rebecca Delaney [email protected] Deutsche Bank employees to MUFG since his Before this, he worked in risk management +44 (0)208 075 0923 transition to the company’s New York office in at Deutsche Bank, Landesbank-Baden Accounts: Chelsea Bowles December 2019, where he aims to build out Wurttemberg and Credit Suisse. He started +44 (0) 208 075 0930 MUFG’s securities finance business. his career close to 20 years ago with Siemens [email protected] in India. Marketing director: Steven Lafferty Most recent hires include Christopher Morley, [email protected] head of the global securities lending solutions Verma will report to LCH Ltd CEO Isabelle group (GSLS) in MUFG’s Luxembourg office, Girolami and will take over the role from 26 Published by Black Knight Media Ltd Copyright © 2021 All rights reserved and Thomas Ryan, senior vice president who July 2021.

www.securitiesfinancetimes.com Training 28

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Date: 12 October 2021 Date: 15 October 2021 Location: Online Location: Online Provider: Consolo Provider: Consolo This live on-demand training course is designed for new entrants to the SFTR is undoubtedly the most significant regulatory change to impact se- industry who require an overview of the securities lending transaction curities lending for over a decade. As the reporting requirement deadline and process involved in execution. begins to loom, this one day course provides an opportunity to hear how the market is preparing itself and what challenges remain unanswered.

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Inserat_Prime_Finance_203x267.indd 1 19.12.2012 14:19:04