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Magazine Issues » December 2020

Securities finance roundtable: Time for the tin hats?

Funds Europe – What are the priorities in advancing this drive for standardisation and harmonisation of market practice?

Dyson – Implementation of the SFTR has been a major commitment across the market. But with the standardisation that SFTR has demanded, it is a relatively short – although by no means insignificant – step to start truly digitalising our markets. With movement towards a common domain model (CDM) providing greater consistency in how firms represent events and processes across a securities loan transaction lifecycle, this provides the foundations for a cleaner, STP [straight-through processing] process across trading and corporate actions processing. 

Ultimately, when we can digitalise master agreements, taking advantage of standardised terms held in firms’ trading systems, this will enable greater automation of collateral allocation, offering potential to enforce counterparty schedules electronically without someone needing to contact the legal department to manually check the terms and conditions.

Chessum – The digital agenda is central to the European Commission’s focus. The securities lending community is already moving ahead with this agenda, being the innovative solution-finders that we are. Securities lending has already moved a long way in terms of applying technology. One illustration is that more than 90% of securities lending trading volume is now done through automated lending platforms. Few would have anticipated this 20 years ago…

Rouigueb – More than digitalisation, the key lies in standardisation. Regulators do not like the lack of transparency in OTC business and a primary reason for introducing the SFTR reporting obligations is to enforce greater transparency in securities financing transactions. Regulators understand that if we are to report financing transactions, we need to standardise terms around the fund transaction. And when we see the flow of transactions, this is only possible with a digitalisation process.

After SFTR pushing transparency of the transactions, the next priority will be the Central Securities Depository Regulation (CSDR) and the buy-in and settlement discipline elements to encourage market fluidity. It is going be a big challenge, particularly for fixed income lending, where we see more fails compared to equity.

Meaden – Recognising these priorities, we have made significant technology investments at Aviva Investors in preparing for the settlement discipline and buy-in regime under CSDR in advance of their proposed implementation early next year.