06 December 2017
Reporter: Jenna Lomax

Collateral pains stinging buy side

“Regulation is limiting possibilities for the securities lending market”, according to Habib Motani an international financial markets lawyer at Clifford Chance.

At Global Custody Forum in London yesterday, panellists discussed collateral challenges and the ways in which the market is adapting, but sometimes struggling, under new regulatory frameworks.

Motani commented that other constraints including “scrutiny of detail, the potential increase of liquidity credit risk and funds’ increased liquidity holding greater amounts, sometimes makes it difficult for my clients to provide their services”.

Guido Wille, member of the executive board at Clearstream, added that, because of regulations, such as the European Market Infrastructure Regulation and the second Markets in Financial Instruments Directive, the buy side is facing challenges around collateral.

Wille said: “Securities lending has skyrocketed in the last three to four years, everyone has to have collateral, that’s been forced by regulations. The buy side has also been forced to look at collateral services.”

Viraj Kulkarni, founder and CEO of Pivot Management Consulting, predicted that regulation would “increase the cost of investment in the coming years”.

Panellists agreed that among the main drivers for opportunity in the securities lending sector were the refining of regulatory rules and improvements in automation.

One panellist advised the audience to keep following Europe’s expertise in terms of its advancement in financial technology.

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