ISLA has expressed concerns over the impact on securities lending markets of amended moratorium powers under the Bank Recovery and Resolution Directive (BRRD).
Moratoria have the effect of suspending payment and delivery obligations for up to a maximum of five working days. Use of the Moratoria Powers also automatically triggers a stay on termination rights arising from non-performance of payment and delivery obligations under Article 68 of the BRRD.
ISLA are concerned that changes to moratorium powers under the BRRD could seriously reduce the availability of securities for lending in the market, which could in turn severely reduce liquidity. Securities lending is a discretionary activity and large holders of assets within and outside the EU may decide to discontinue the activity on the basis of the current proposal.
It could result in non-EU counterparts deciding to increase business with counterparts outside the EU and to transact with counterparts on non-EEA contracts using their local law. The stance of non-EU lenders is crucial, given ISLA estimates that around 60% of all outstanding securities lending transactions within the EU involve securities lent by non-EU lenders.