December 2022

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Agent lenders are a central part of the securities lending supply chain. What they say to their institutional beneficial owner clients, how they invest in their businesses and how they think about market structure results in observed changes throughout the industry. The agency lending market is concentrated; there may be no more than 20 notable market participants between the largest and the smallest, and the top 10 players control the majority of loan activity. This means that a small group of bank and non-bank affiliated institutions are a leading indicator of securities lending market activity globally.

Complex regulatory proposals have caused the securities lending industry to improve transparency and change its approach to balance sheet management. While Europe’s Securities Financing Transactions Regulation (SFTR) is complete, save for a discussed reboot, the US Securities and Exchange Commission 10c-1 proposal has been published and the US and Canada will move to T+1 settlement in 2024. The next and hopefully final phase of Basel III rules around the world will have yet more impact. The responses of agent lenders and their clients will help determine how liquidity for operational settlements is made available to the market.

In this report, Finadium presents the results of a survey of leading agent lenders conducted in October 2022 to hear their views on technology investment, ways they are supporting their clients in lending securities to non-prime broker counterparties, CCPs and market conditions. This report can assist due diligence efforts for beneficial owners and offer an inside look at agency lending for service providers, technology providers and regulators.

Table of Contents

  • Executive Summary
  • Market Conditions: Strong but Fluid
    • – Methodology
  • Technology Priorities and Directions
    • – Thinking About Distributed Ledger Technology
  • Servicing Peer to Peer
    • – The Tie-in to Central Funding Desks
  • Support for Securities Lending CCPs
  • Making the Most of More Regulatory Change
    • – Pricing Indemnification
  • The Modular Approach to Agency Lending Services
    • – How Big Will TRS Get?
  • About Finadium LLC

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