News
Squaring ESG with Securities Lending
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. 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.
One market veteran asked if there is any other space in capitalist finance where the lender knows neither the specifics of the borrower nor the purpose of the loan? Given this opacity, can ESG factors really be squared with securities lending strategies?
Alarm Raised on Stock Loans for “Withholding Tax Schemes”
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.
EU Tax Officials to Audit Securities Finance
The European Securities and Markets Authority (ESMA) has recommended that the market regulators in EU Member States combine trade data generated from the Securities Finance Transaction Regulation (SFTR) with local surveillance data so as to empower tax authorities to catch and indict tax abusers. To the abusers, that is like saying that the Sheriff and Posse are closing in on their SFTR trails.
(No kidding. What did they think? And if the abusers haven’t created defenses by this time, it’s already too late.)
Governance in the Age of Financial Crises
In the coming corporate bankruptcy crisis, banks and companies perceived as bad actors in society will find their resolution terms to be very harsh. To avoid being diluted or even wiped out, large shareholders and corporate boards of directors must be constantly vigilant in exercising their oversight duties. Stakeholders must enforce policies which require company management to act in a socially responsible fashion.
ESG-compliant Solutions to Stock Lending Bans
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.
Taking Stock of Blockchain for Improving Securities Services
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.
Distributed Ledger Technologies in Securities Finance
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.
ESMA Takes a Look at Tax Withholding Schemes
The European Securities and Markets Authority (ESMA) has published the findings of its preliminary study of multiple withholding tax (WHT) reclaim schemes. ESMA conducted this preliminary study at the request European Parliament (EP) and has launched another more formal inquiry to gather further evidence from national competent authorities (NCAs) on the supervisory practices and experience regarding those schemes.
The study published on July 2, 2019 assesses how widespread WHT reclaim schemes are across the EU and any potential methods for preventing and detecting them. While WHT schemes are not strictly illegal and “do not necessarily imply breaches of the market abuse or short selling regimes, they may affect the integrity of securities markets and individual firms.” ESMA found that WHT reclaim transactions are being investigated in Germany, Denmark, and Austria.
Securities Processing: Big Tasks Lie Ahead
The nature of the securities business has changed dramatically in the last decade. A full understanding of those changes is necessary in order to appreciate the challenges facing the industry in the Eighties. Impressive strides have been made since the days of the...
Systems Experts Set the Bar for Blockchain in Securities Finance
“Hype and Reality for Blockchain and Distributed Ledger Technologies” at Institutional Securities Lenders’ Meeting February 6, 2019 —Systems entrepreneurs – Armeet Sandhu, Sal Giglio, and Ed Blount – engaged in a lively brainstorming session with Chris Ferris, IBM’s Distinguished Engineer for Open Source Technologies, at IMN’s 25th Annual International Securities Finance and Collateral Management Conference. …