It was noted that recent data indicates that around 15% of all securities lending transactions are executed using pledge rather than title transfer.
The Committee then discussed recent analysis of Securities Financing Transactions Regulations (SFTR) data by ICMA. This showed that up to 90% of European collateral borrowing came from non-EEA funds. And while there are some caveats, which mean they true number may not quite as high, this shows large reliance on US and Middle Eastern funds. This has increased from 60% a few years ago.
The Committee also noted that while UCITS, the most common investment wrapper in Europe, has a number of benefits, it often restricts securities lending activity. Some members suggested that the regulatory community need to look carefully at the terms of UCITS funds, in order to make them more lendable whilst preserving the benefits of the UCITS fund model. Without such a future change, it was felt there could be an increase in the risk of credit and liquidity squeezes.
The Committee also discussed some upcoming difficulties in the industry, noting that sourcing US collateral is likely to get more difficult in 2022. There are existing CSDR liquidity challenges for US borrowed securities such as requiring dollar cash collateral. This can be difficult to turn around in time and is frequently causing daily fails, but from February next year this will also come with a CSDR penalty.