Tuesday, October 20, 2020

Squaring ESG with Securities Lending

Compliance without Knowing the Borrower's Purpose - Is it Possible?

Author: David Schwartz

Sustainable investing is becoming more important to investors when creating portfolios. As a result, institutions often follow policies with formal environmental, social, and governance (ESG) factors to guide their investments. They commit substantial resources to ESG research and produce comprehensive reports about their compliance.[1] But then the same institutions give away their proxy votes when they lend securities for fees to cover their bank charges. And the loans of those securities – and their proxies – go to borrowers with unknown intentions, and often with unknown identities.

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Wednesday, September 30, 2020

Alarm Raised on Stock Loans for "Withholding Tax Schemes”

Findings Point to a New Role for Emerging Fintech

Author: David Schwartz

European commissioners are reviewing a study from their securities and market authority (ESMA) that includes a recommendation for new laws to combat unfair trading practices and an extended remit for National Competent Authorities (NCAs) to conduct snap audits of securities loans and transactors. Loans deemed to be suspicious would prompt an inquiry to determine penalties for unfair strategies and inappropriate beneficiaries. However, useful audit results may be doubtful based on our preliminary review that uncovered shortcomings in the proposed SFTR surveillance datasets, as well as possible flaws in the study’s basic methodology. 

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Wednesday, December 4, 2019

ESG-compliant Solutions to Stock Lending Bans

Distributed Ledger Technology in Service to Activist Investors

Author: Ed Blount

Stock lending agents and prime brokers were challenged with a once-in-a-career opportunity after the December 3rd, 2019 announcement that Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, had decided to ban the lending of their offshore stocks -- nearly half of their holdings. That bold decision by the fund's CIO will reportedly cost as much as $300 million in lost annual income and “could prove hugely disruptive to equity markets if others follow its lead,” according to the Financial Times.

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Monday, May 13, 2019

Distributed Ledger Technologies in Securities Finance

As Revolutionary as Central Securities Depositories?

Author: Ed Blount

The most powerful Distributed Ledger Technologies (DLT) for securities finance will be cloud-based data lakes in which blockchains and shared ledgers form the currents and eddies. Smart contracts will power the mills that channel the data flows to provide services to their participants. In their potential, DLTs can reengineer current securities processes in the same way that central securities depositories (CSD) did in the 1970s … so long as the looming limitations can be overcome.

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Thursday, January 10, 2019

Taking Stock of Blockchain for Improving Securities Services

Initial hype has ebbed and real progress is being made

Author: Ed Blount

The early torrent of media hyperbole about distributed ledger technologies (DLT), such as blockchain and shared ledgers, has now been supplanted by reflection on lessons learned. Scaling concerns were allayed to some degree by DTCC’s November 2018 report that its study of throughput capacity for DLT was sufficient to handle massive U.S. equity trading volumes. More positive ink came as a group of 15 global banks reportedly eased ahead from initial testing to a planned 2Q19 start date for adopting the newly re-coded $11 trillion Trade Information Warehouse at DTCC, in which IBM created a shared ledger for tracking the lifecycle events of 98% of all credit default swaps.

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