IHS Markit has launched a major update to its exchange-traded funds (ETF) collateral lists, which aims to enable collateral receivers to proactively identify index funds based on their risk criteria.
The data analytics firm has broadened its inventory of accepted securities and triparty agent connectivity to manage distribution, meaning ETF Collateral Lists 2.0 can increase collateral transparency and control by calculating daily risk scores.
The lists draw from a universe of more than 8,000 ETFs which IHS Markit says covers all US exchange-traded products and every major European market.
According to IHS Markit, the traditional process for selecting ETFs as collateral was often “inefficient, cumbersome and reactive”. Lenders would have to manually screen the vast universe in which ETFs are available to identify those which suit the diverse requirements of beneficial owners.
ETF collateral lists 2.0 aims to solve this by allowing custom search criteria to be set, which informs an objective methodology to screen the universe.
The lists are produced daily and contain qualifying ETFs which physically hold the same underlying assets as those in the collateral receiver’s current eligibility programme. Once defined, the solution continues to manage acceptable ETF inventory, by automatically identifying newly qualified ETFs and removing those which fall out of criteria.
IHS Markit explains that early institutional adopters who have subscribed to and helped shape ETF Collateral Lists 2.0 include Barclays, BlackRock, BNY Mellon, Citi, Credit Suisse, HSBC, J.P. Morgan and State Street.
James Templeman, global head of securities lending trading at BlackRock, describes the revamp as “a significant milestone in increasing the use of ETFs as collateral”.
For BlackRock, he explains, the enhanced functionality enables it to identify “the ETFs that meet our specific collateral parameters, with the added benefit of a dynamic risk management process, which has been a challenge for the industry until now”.
Templeman adds: “We have already seen a significant increase in ETF collateral balances and look forward to further developments from IHS Markit, in particular within fixed income ETF functionality.”
Elsewhere, Ben Challice, global head of trading services at J.P. Morgan says: “Given growing client demand for greater flexibility and granularity for ETF collateral acceptance, we are pleased to extend our eligibility service offering and integrate with custom ETF lists.
Adding IHS Markit customised list data into our collateral systems provides clients additional optionality to manage their own risk parameters, complementary to their triparty collateral profiles which can be applied to clients’ eligibility schedules using J.P. Morgan’s online eligibility service.
Having also expanded our acceptance of ETFs as collateral using the IHS Markit list data for Agency Lending clients, it helps expand liquidity for more efficient financing of ETF inventory.”
