Highlights from 2022

A study by reg tech firm CUBE said that regulators are overlooking the negative environmental effects of mining crypto such as Bitcoin and Ethereum.

ASSET MANAGEMENT:

Voting and collateral ‘most important’ ESG factors - NNIP Shareholder voting and collateral are the “most important” factors to consider when it comes to incorporating environmental, social, and governance (ESG) factors in securities lending, according to Dutch asset manager NN Investment Partners.

Xavier Bouthors, senior portfolio manager, investment solutions at the Goldman Sachs-owned firm, believes that ESG integration into portfolio management has triggered a review of securities lending programs’ parameters.

He said: “At NN IP we see voting and collateral as the two most important ESG pillars in securities lending. Shareholder voting is an important mechanism to voice concerns and expectations to companies and engage on ESG issues. The annual general meeting gives us this opportunity, so we need to ensure our voting rights are protected and available on voting day.”

SGX, ICE seal index plan as part of partnership

Singapore Exchange (SGX) and Intercontinental Exchange (ICE) have agreed to develop new indices as the two exchange groups finalised a wider cooperation deal in late July.

The Singapore-based exchange group said it would work with ICE’s Data Indices arm to develop new index products as they announced the partnership. ICE-owned New York Stock Exchange (NYSE) will also begin dual listing companies with SGX, and the agreement includes working to bring environmental, social and governance (ESG)-based products as well as new exchange traded funds (ETFs).

Regulators neglecting green impact of crypto mining – report Regulators are neglecting the environmental impact of mining cryptocurrencies, according to a new report that states less than 0.1% of proposed guidelines address the carbon footprint of issuing new tokens.

The report, entitled Cryptopia: Regulation & Crypto on a Cliff Edge, suggests there is a potential conflict of interests for banks that are committing themselves to green projects while separately investing in cryptocurrencies.

Technology key to navigate different attitudes to ESG

- BNY Mellon

Technology is key to delivering data in the right format to navigate the differing attitudes to environmental, social and governance (ESG) in Europe and the US, a managing director at BNY Mellon has suggested.

Speaking at the Association for Financial Markets in Europe (AFME) operations, post-trade, technology and innovation conference in London, Corinne Neale managing director, global head of ESG applications at BNY Mellon, argued that ESG has a different meaning in the US to Europe.

Hedge fund returns end year down as redemptions continue - Citco

Hedge funds ended a bad year badly as their December performance dipped into the red for the first time in the last quarter of the year and monthly redemptions hit $35bn ($28bn), according to a report. The paper by hedge fund administrator Citco found that overall hedge fund returns were down in December to -0.7%, compared to a positive 2.9% in November and 1.6% in October.

December is normally a busy month for cash re-allocation and this was true also last year when inflows more than doubled to $21.6bn and redemptions hit $35bn, meaning a net outflow of $13.4bn, which was lower than the $24.3bn of December outflows estimated in Citco’s last report.

SECURITIES FINANCE:

‘Digitalising infrastructure’ helps improve client experienceSharegain

Fintech Sharegain has said that “digitalising capital markets infrastructure” is a key function in improving the client experience. Speaking after Sharegain delivered in May new connectivity options through the cloud, Benjamin Smith, senior product manager at Sharegain, said: “Digitalising capital markets infrastructure is one of the best ways to improve client experience as digital and cloud-connected services, as opposed to on-premises hardware that require manual intervention and maintenance, enable companies to provide their end clients with more control and increased transparency.”

Shareholder voting vital for ‘good governance’ in lendingBroadridge

Shareholder voting is key to “good governance” of a corporation in securities lending when it comes to environmental social and corporate governance (ESG), according to an industry fintech.

Darren Crowther, general manager, securities finance, and collateral management at Broadridge, said all of the aspects in ESG are important to varying degrees, but the one that stands out for the securities finance industry is governance.

‘Interoperable, flexible’ technology key to achieve T+0Provable Markets

“Interoperable and flexible” technology solutions will be integral to the longer-term goal of making seamless same day (T+0) settlement for cash equities tangible, a US lending fintech has said.

Matthew Cohen, co-founder and CEO of Provable Markets, believes the move to T+1 should not be a major problem for the industry to accomplish by the proposed deadline of March 2024 in the US, but that this won’t be the case for T+0 which will be much harder to achieve.

Securities finance revenues up a third in April - IHS Markit

Global securities finance revenues reached $1.058 billion (£859 million) in April, a 32% year-on-year rise, according to new research from IHS Markit.

Paul Wilson, managing director, securities finance at IHS Markit, part of S&P Global, said: “The year-on-year increase was primarily the result of equities, with all regions showing yearon-year growth. Average daily global revenues decreased 2% in the month compared with March. American equities and global exchange traded products (ETP) are notable in revenue growth driven by both year-on-year increase in balances and fees.”

2022 Lending Revenue Just Short Of Annual Record

Revenue from securities finance increased 6.6% last year to $9.89 billion (£8.3 billion), according to DataLend, making 2022 the second most profitable 12 months ever, narrowly behind the

industry’s best year in 2018.

EquiLend, the market data service of New York fintech, said last year’s revenue total was ahead of the $9.28 billion total in 2021 and $7.66 billion in 2020 but behind the $9.96 billion in 2018. Government debt revenue in 2022 increased 9.8% year-on-year as higher fees offset a drop in on-loan balances, the firm said.

In equity lending, North American securities was the best performing region generating $295 million in revenue last year, an 11% increase compared to 2021.

Trade body calls for FCM exemption from US treasuries clearing plan

Trade body FIA has asked the US securities regulator to exempt Futures Commission Merchants (FCMs) from the planned US treasuries clearing requirement.

The FIA submitted in January comments to the Securities and Exchange Commission (SEC) in response to its proposal in September to expand the scope of clearing in the US treasuries market, including in the secondary trading market and US repo. The FIA noted that FCMs registered with the US Commodity Futures Trading Commission (CFTC) and the SEC would be subject to SEC and existing CFTC rules governing FCMs. Therefore, as proposed, the SEC rules do not align in all respects with CFTC rules, it said.

Industrials continue to be most shorted names in Europe - data

Industrials stocks were the most shorted names in Europe for the fourth consecutive month, according to new data from SEI Novus.

Short-position data from the intelligence firm based on aggregate short positions in European Securities and Markets Authority-regulated countries showed that industrials and consumer discretionary were consistently the most shorted sectors in 2022.

CUSTODY:

DTCC, two trade bodies publish T+1 settlement guide

The Depository Trust & Clearing Corporation (DTCC) and two US trade bodies published a guide on preparations for the proposed reduction of the US equity settlement cycle to T+1.

The Securities Industry and Financial Markets Association (SIFMA), the Investment Company Institute (ICI) and the DTCC said ‘The T+1 Securities Settlement Industry Implementation Playbook’ outlines a detailed approach to identifying the implementation activities, timelines, dependencies, and risk impacts firms should consider to prepare for the transition from the current T+2 settlement cycle to T+1.”

Trade body warns against European Mifid regulatory reforms

The main European banking trade body has warned European regulators against proposed changes to the Markets in Financial Instruments Regulation.

The Association for Financial Markets in Europe said the proposed changes to the European regulation that has been in effect since 2018 risk hampering the work of banks supporting markets by providing liquidity.

The trade body welcomed parts of the proposed changes, including those related to a consolidated tape for equities and bonds.

Komainu hires former LSEG equities head Bertrand as CEO

Digital asset custodian Komainu has appointed markets veteran Nicolas Bertrand as its new chief executive, settling an open position at the head of the joint venture backed by Japanese investment bank Nomura.

Komainu, based in Jersey, said in late September that Bertrand has become its chief executive with immediate effect and is charged with growing its business in the face of the uncertain market environment.

Europe opens consultation on CSDR penalties process

The European securities regulator is seeking views on simplifying the process of the collection and distribution of cash penalties for settlement fails relating to cleared transactions.

The European Securities and Markets Authority (ESMA) has launched a consultation on a possible amendment to the central securities depositories regulation (CSDR) cash penalty process for cleared transactions.

Euroclear invests in ESG analytics provider

Euroclear has invested an undisclosed amount in an environmental, social and governance (ESG) technologyenabled analytics and data science solutions provider, to help firms increase their understanding of the sustainable impact of their investment strategies.

By partnering with London-based Impact Cubed, investors will now be able to compare a security’s sustainability exposure, allowing them to make more informed investment decisions.

Caceis and BNP Paribas launch new issuer services provider

Caceis and BNP Paribas have jointly launched a new issuer services provider in France and pledged to roll out the service across Europe, the firms said in January.

The new service, called Uptevia, offers issuers a range of services including shareholder recordkeeping, organising and centralising general meetings, setting up financial operations, managing employee shareholding plans and providing equivalent services for fixed income products such as bonds and negotiable debt securities.

State Street targets proxy voting to enable ESG alongside lending

State Street has said it is working to make the process of proxy voting more efficient and transparent as asset owners look to use this function to apply their environmental, governance and social (ESG) strategies alongside their lending programmes.

Speaking to Global Investor Francesco Squillacioti, global head of client management, securities finance at State Street, believes the idea of clients looking to vote through proxies has always been important from the early days of securities lending.

Clearstream, Vermeg launch collateral service for European banks

Clearstream has partnered with fintech Vermeg to launch a collateral management service that will link with the European collateral platform slated for launch in 2024. Luxembourg-based Clearstream, which is the post-trade arm of Deutsche Boerse, said it has worked with Vermeg to deliver a straightthrough processing (STP) collateral management solution that will link with the Eurosystem Collateral Management System (ECMS).

Financial firms must be exempt from EU sustainable rules - trade bodies

Four trade bodies have called on the European Union to exempt financial firms from the EU directive that requires firms to run due diligence checks on their trading partners. AFME, ISDA, FIA and EPIF published a joint paper in January that took issue with the Corporate Sustainability Due Diligence Directive’s requirement that regulated firms should apply checks not only to suppliers (upstream) but also downstream to corporate clients and trading counterparties.

DERIVATIVES:

Euronext sees volatility over ‘short-term’ as earnings jump Euronext said in early 2022 it expects trading volatility to continue in the “short-term” as the European exchange reported its strongest ever quarter by revenue and raised its cost saving expectations from its merger with Borsa Italiana.

The group that operates markets in Paris, Amsterdam and Brussels reported in May first quarter revenue of €395.7 million (£334.4m), its highest ever in a three month period.

Giorgio Modica, chief financial officer of Euronext, said: “We believe the volumes will be higher than average at least for the short term but it remains to be seen what we will see in the third and fourth quarter of this year.”

ICE switches Euroclear sale to French, Belgian state funds

Intercontinental Exchange (ICE) has agreed to sell its stake in Euroclear to two European government owned investment funds, switching from a previously announced sale to a private equity firm.

The Atlanta-based exchange agreed in October 2021 a €709 million (£598m) disposal of its stake to American fintech investor Silver Lake.

But ICE said in May it will now sell its 9.85% stake in Brussels-based Euroclear to French government owned Caisse des Dépôts et Consignations (taking 5.42%) and to Belgium government owned Société Fédérale de Participations et d’Investissement (taking 4.43%).

CME chief Duffy slams idea of limited scope for FTX

CME chief executive Terry Duffy has criticised the idea of a limited test phase to enable crypto firm FTX to secure US regulatory approval for its direct clearing venue.

The chairman and chief executive officer of CME Group told the House

Agricultural Committee in May: “We do not see how the commission could credibly make this finding or legally limit its approval even on a test basis to crypto only.”

HKEX to relax position limits for equity derivatives

Hong Kong Exchanges and Clearing (HKEX) plans to relax the position limit rules covering single stock derivatives and mini contracts on its most popular equity index contracts after the conclusion of a review process.

The Hong Kong-based exchange group said it would increase the position limits for its single stock derivatives and bring the limits on mini contracts in line with the standard benchmark equity index contracts.

CFTC commissioner hits out at Shanghai Clearing House exemption

A commissioner of the Commodity Futures Trading Commission has questioned the US regulator’s decision to extend Shanghai Clearing House’s exemption from registration despite the lack of an agreement with the Chinese central bank on the matter.

Commissioner Summer Mersinger took issue with the extension granted by the CFTC. Shanghai Clearing House’s exemption from registration as a derivatives clearing organisation (DCO) was set to expire in late July, and will now run to the end of July next year, with the division of clearing and risk saying it does not plan to issue further extensions.

“I am troubled by Shanghai Clearing House’s lack of engagement with Commission staff regarding its application for an exemption from DCO registration, its sudden re-engagement as the expiration date for its prior no-action letter looms, and issues surrounding the feasibility of securing a memorandum of understanding with the People’s Bank of China that satisfies the requirements for such an exemption,” Mersinger said in a statement.

ISDA wants 12 months to implement UK reporting reforms

The International Swaps and Derivatives Association has recommended a 12 month grace period for firms to implement the “designated reporter” trade registration system proposed by the British regulator in September. In its response to a UK Financial Conduct Authority (FCA) consultation, the New York-based trade body recommended an implementation period of 12 months citing operational challenges.

ICE plans London-based TTF market to avoid European price cap

Intercontinental Exchange (ICE) said it is working on a London-based natural gas trading venue as an alternative for traders keen to avoid the effect of the European price cap on ICE’s Amsterdam-based market. The exchange said in January it is working to create a UK-based market for market participants to avoid the effects of the new European natural gas regime should markets tick upward and threaten to trigger the measure.