Snapshot of securities lending activity published by OFR

Snapshot of securities lending activity published by OFR

  • Export:

A three-day snapshot of securities lending activity has been published by the Office of Financial Research.

The pilot study, recorded during the last quarter of 2015, highlights the value of securities available for lending, transaction details and collateral information.

Seven major agent lenders took part in the scheme, offering a look into their securities lending book at the closing of each of three reporting days on October 9th, November 10th, and December 31st. 

Over the three reporting days, on average, $9.4trn worth of securities were available for lending.

A median figure of $1trn worth of securities loans were outstanding or about 11% of the lendable assets.

The collateral received was about equally split between cash ($532bn) and noncash ($487bn).

“The data collection pilot was a first step in understanding the data available from market participants as well as the complexities involved in collecting and aggregating the data,” said officials at the OFR - an independent bureau within the US Treasury. 

“Insights from the data collection pilot will prove invaluable in designing any potential reporting scheme for a more permanent data collection," added OFR senior financial analyst Viktoria Baklanova.

Staff at the SEC and Federal Reserve Bank of New York experts were also involved in the study. 

The project follows a statement earlier this year by the Financial Stability Oversight Council, which cited potential systemic stability risks associated with the securities lending industry and added that addressing a lack of data securities lending was a priority.

Additional data in the OFR report shows investment firms had nearly $3trn of securities available for lending, the most of any securities owner type.

Pension funds and endowments had the second largest supply of securities available for lending, on average $2.5trn.

These institutions had an average value of $332bn securities on loan, the most of any securities owner type.

Governmental entities had the second largest volume of securities on loan at $327bn

Broker-dealers were the largest borrowers, collectively borrowing $869bn in market value of securities.

Hedge funds and state pension funds together borrowed less than $10bn, although the pilot couldn’t identify cases in which broker-dealers borrowws securities on behalf of their clients.

US equity securities were the largest type of securities available for lending ($3.2trn), but only 10% (or $315bn) was actually on loan.

Of US Treasuries and agencies, $302bn in securities was on loan, which represented 27% of the lendable securities in this category.

Approximately 81% of loans of US corporate bonds and 70% of loans of US equity securities were collateralized by cash.

In contrast, only about half of loans of US Treasuries and agencies were collateralized by cash collateral (48%).

Most loans (or 81%, on average) were open, on-demand loans, that either borrower or lender could terminate at any time, and could be subject to potential run risk.

A larger share of loans of US Treasuries and agencies were callable contracts (24%) and term loans (11%) compared to the other security types.

“Challenges remain in collecting and interpreting securities lending market data," added the OFR paper. "More work must be done to ensure data quality through the use of appropriate standards.

“Such standards include the legal entity identifier (LEI) and the categorization of financial instruments.

“Staff from US regulators are working with international regulatory bodies to examine potential steps to harmonize reporting requirements, definitions and concepts.”

  • Export:

Related Articles