RISK MANAGEMENT ASSOCIATION
More than a token effort The director of global markets risk and securities lending at the Risk Management Association (RMA) assesses progress on tokenisation of assets and the integration of ESG considerations into securities lending in the US. Securities lending is an integral part of the financial ecosystem and underpins capital market structure though increased liquidity. The US continues to have the most developed and deepest capital markets in the world and the ability to lend and borrow securities is a primary contributor to that. While the securities finance industry continues to face regulatory headwinds ranging from bank capital rules and single counterparty credit limits to enhanced transparency initiatives, securities lending will continue to be an important driver in maintaining capital market efficiency and a source of incremental revenue to underlying beneficial owners. One of the topics generating interest in this space is the potential of tokenisation in the collateral sector. If the field of eligible collateral could be expanded to include tokenised assets, this collateral could be used to secure repo financing, lent out for income in a securities loan, or serve as initial margin on OTC derivatives trades.
Fran Garritt, RMA director of global markets risk and securities lending
a lower cost of funding for less-liquid asset classes, since those assets are often funded on an unsecured basis. This will be a key driver of the technology and will generate substantial savings for market participants over time. O’Laughlen states that wider adoption of tokenised assets will require regulators to determine how to treat such instruments – as securities, commodities, or some other asset type – and update existing rules accordingly. He also suggests that the legal status and enforceability of tokenised assets will develop over time, thereby enhancing investor
Asset tokenisation Earlier this year, the RMA published a white paper on tokenisation authored by Victor O’Laughlen, managing director and digital business leader at BNY Mellon, in which he suggested that just as a robust collateral infrastructure has developed around securitised instruments, the same potential exists for a thriving tokenised asset collateral sector to emerge. His view is that by expanding the range of available collateral, tokenisation may facilitate
39
Securities Finance Americas Guide 2022
