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ETFs get MiFID II securities lending boost

ETF_promotingRevised capital market rules known as MiFID II introduced this week are likely to spark a rise in institutional investors using ETFs for securities lending, according to ratings agency Moody’s.

Under MiFID II, ETF trades – many of which are over-the-counter trades and non-transparent - have to be transparently reported.

Marina Cremonese, a vice president and senior analyst at Moody’s, said greater clarity about ETF trades and liquidity would spur ETFs as a tool in securities lending.

“As ETF trades will have to be reported, there will be more information about ETF trading volumes and liquidity. The resulting improvement in transparency and liquidity will likely prompt a larger usage of ETFs for securities lending and collateral purposes from institutional investors,” she said.

Cremonese also echoed others in the industry by saying MiFID II, the revised Markets in Financial Instruments Directive, would lead to widespread change.

There will be changes in the design and sale of asset management products, she said, and that increased cost transparency and easier product comparability would intensify fee competition in the industry.

“The added cost transparency and ban on commissions for independent financial advisers will encourage greater use of low cost passive funds among retail clients, supporting the growth of ETFs,” Cremonese said.

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