RMA
Risk Management Association’s Securities Lending Council provides a key resource for the industry and its regulators to ensure transparent and well-functioning securities lending markets. RMA’s Fran Garritt tells SFT where it will be focusing its attention during 2022
What were the standout events and developments that most shaped the securities lending industry during 2021 from the RMA’s perspective?
There were two main themes shaping our industry in 2021. The first was market-related events around meme stocks at the beginning of the year, which dampened directional activity. The second was a series of rule proposals from regulatory bodies which will have implications for securities lending markets.
The market benefited from multiple, related corporate action events — as has been noted in a wide range of industry forums. The trading activity around GameStop, combined with rising equity markets, seemed to crowd out directional activity away from single name stocks into more sector-wide instruments such as ETFs. However, a surge in special-purpose acquisition company (SPAC) issuance was a bright spot for lending activity, not only for directional bets but also to facilitate settlement and hedging against warrants to early investors.
2021 also prompted a new focus on our industry from a regulatory perspective, specifically around proxy (Form NP-X) and general securities finance (10c-1) disclosures. Both of these regulatory initiatives were introduced in the latter half of 2021 and will be a key focus for our Association going forward. The council has submitted comment letters on both proposals, and we await feedback from the US Securities and Exchange Commission (SEC). In addition to these regulatory items, the council is also focused on the impact of the T+1 settlement regime and what our members would need to achieve this aspirational target.
What were the primary risks and points of inefficiency confronting your members coming into 2021? How well has the industry managed these challenges?
The US securities finance market is highly efficient, so operational risks are already well mitigated. This was illustrated by the market’s ability to easily adapt to the volatility seen throughout the first half of the year. We are continuing to monitor the regulatory and settlement items noted above, as these will have a direct impact on our industry.
What has been top of the RMA’s priority list in terms of regulatory engagement during 2021?
Market events of 2020 and 2021 have kept our member workstreams busy over the past year. Following the extreme market volatility experienced in Q1, our Operations and Technology subcommittee has been examining the impact on operational processing, from daily mark-to-market activity to a potential move to T+1 settlement in the US. The pending implementation of the Central Securities Depositories Regulation (CSDR) in Europe in early 2022 has also been a focus for the group.
Our Fintech subcommittee has published white papers covering tokenisation and ESG data. We also formed an ESG subcommittee earlier this year. The group has been focused on education and best practices for integrating ESG considerations into securities lending programmes. Finally, our Legal, Tax and Regulatory subcommittee has concluded the year by evaluating and responding to a number of new SEC rule proposals that impact securities lending, including the ones I mentioned earlier — proposed Rule 10c-1 for transparency of securities loans and proposed amendments to Form NP-X for enhanced reporting of proxy votes.
The securities finance industry has experienced two years of high market volatility and liquidity fluctuations, following the Q3 19 US repo spike, impact of the COVID-19 pandemic and steps to drive post-COVID recovery. What are the key lessons learnt from this period?
The key lesson learnt is that the industry’s investments in technology and automation paid off during times of significant volatility. Since the 2008 global financial crisis, there has been significant investment in infrastructure from industry vendors as well as our members. This investment helped to mitigate the impact of the pandemic and has allowed member firms to concentrate resources on measures for adding value and risk reduction — as opposed to utilising resources to account for an increase in volume. This reassuring development reinforces the need to continually reinvest in our industry — as highlighted by the formation of RMA’s Financial Technology and Automation Committee. This committee will be integral in educating and navigating our members through a new frontier.
The RMA is one of five regional trade associations to join GASLA in September. What are your objectives as a founder member?
RMA has a longstanding collaborative relationship with the other regional securities lending associations. Most of our members are global firms and active participants in multiple regional associations. In speaking with our members, it became clear that certain industry initiatives are better viewed with a global lens and that duplicating efforts within each regional association was less efficient and less impactful than working together. The Global Alliance of Securities Lending Associations (GASLA) was formed, in part, as a result of this realisation. Through GASLA, we can share ideas and resources to deliver a consistent and unified message on matters impacting our industry across the globe. GASLA’s initial work has focused on ESG considerations within securities lending. We look forward to continuing our work on this and other topics with the collaborative working group in the new year.
What is top of the RMA’s working agenda moving into 2022?
The RMA’s agenda in 2022 will remain the same as it has been for the past few years — to serve as a resource for the industry and its regulators to ensure a transparent, well-functioning market. Alongside more general issues like ESG, particularly including climate change, we expect to engage with the new appointees of the Biden administration’s agencies to ensure fair and balanced development of the market and application of the law.
For example, we believe that the final stages of revisions to the capital and liquidity framework, which began shortly after the 2008 financial crisis, may be proposed in the US this year. We look forward to working with the banking agencies to ensure these revisions are applied appropriately to our industry. We are also optimistic that efforts can be finalised to expand the types of collateral that borrowers may provide and that lenders may accept, thereby delivering a more efficient market. Finally, the SEC is always focused on disclosure and transparency. We aim to ensure that the market receives the appropriate information without imposing undue costs and burdens on its participants.
Beyond this, the RMA retains a focus on providing education and networking opportunities for the industry. Shifting from traditional in-person conferences to virtual events has allowed us to stay connected with members and to keep them up to date on the latest developments, despite the challenges presented by the COVID-19 pandemic over the past two years.
To that end, RMA’s Securities Lending 2022 Outlook will take place on 1-2 February. The event will bring together market participants to discuss topics including transparency, legal and regulatory updates, and ESG concerns. While this event will remain virtual, we are hopeful for a return to in-person events at some point later in the year.
