GFF Podcast

Season 4 Premiere: ISLA Special - the 2025 Industry Leader Outlook

• Season 4 • Episode 1

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For our new season premiere, we're presenting a show with industry leaders from ISLA, BNY, Clearstream and HQLAx. Featuring insights and analysis from Ina Budh-Raja & Andrew Dyson (ISLA), Marton Szigeti, James Cherry, Banu Apers, Alexandre Roques, Marc Poinsignon & Jean-Robert Wilkin (Clearstream) and Elisa Poutanen & Charlie Amesbury (HQLAx). Listen for insights into collateral optimisation, liquidity management, balance sheet netting, regulatory compliance, blockchain settlement, tokenisation and more. Hosted by our regular team of central bank expert, Christian Rossler (Clearstream) and our resident podcast journalist Andrew Keith Walker.

Andrew Keith Walker

Hello and welcome back to Season 4 of the GFF Podcast. Yes, thank you, thank you. We are back with a very special Season 4 premiere episode where we will be catching up with senior industry leaders back from the ISLA Conference, looking forward to the year ahead and the big themes that are shaping the world of securities, lending, repo, central banks and all those big economic pictures that are shaping the world of global funding and financing, and to join us on that journey, now being filmed in glorious technicolor for social media clips. Yes, do stay tuned. Go to our LinkedIn page that's linkedincom slash company, slash Clearstream, so you can catch us recording some little snippets from the show and a few little clips of our guests. And joining me on that journey is the BFF of GFF, the BFF to all the central banks in the EU and beyond, none other than the very handsome and young-looking compared to me, sadly Mr Christian Rossler.

Christian Rossler

Yes, andrew, we are back. It's happy to be back, and I mean you look younger in the studio, so I don't think it's right what you say. I mean, we've been doing three years. It's true, we've done some videos together, to be honest, but that was more. You know on the free format video via our iPhones. But this is really the studio now.

Andrew Keith Walker

That's very kind of you to say so, christian. I'm going to say now that I've got some very, very advanced software working for me just to smooth the lines out and stuff. So thanks for that. But, christian, tell us, what have we got coming up in season four?

Christian Rossler

So we're going to see, obviously, all the guests as well in video, which is great. We're going to have a couple of shows which spin around digitization, but also data products, which is something that we've discussed already in the past, but we're going to look at it more precisely together with our people from the data products that support collateral management products. Then we look at regulation. I mean, it's some of the outcomes of the isla and also the latest trends, I think, show that regulation is still shaping the way we have to develop our products going forward.

Christian Rossler

We're also going to look at balance sheet netting, which is obviously derived from the fact that regulation is driving the product, so our users use our products to perform balance sheet netting. So we're going to learn what it is, how it can be achieved and who's going to benefit most of it. Then we'll look at also our GFF Summit 2025, where you're going to be live in Luxembourg and where you're going to record the show live. That's another show which we have reserved, and so I believe we're going to see now our first show, which is about the latest International Securities Landing Association's 31st conference on collateral management and securities lending, which was hosted in Geneva.

Andrew Keith Walker

That's right, christian. So let's dive in right away with two people who were responsible for putting the whole program together, and that is, of course, ina Budraja, who, as well as being the chair of ISLA, is also the EMEA head of securities, finance and regulatory strategy, industry affairs markets and ESG at BNY Mellon. She's also on the Bank of England Money Market Committee. She's the chair of the subcommittee on the money market codes there as well, and on the securities lending subcommittee. And also, uh, joining us is andy dyson as well, the ceo of isla. And here's what they had to say, fresh back from geneva we did come back feeling it had been a great success.

Ina Budh-Raja

Um, you know, easy to say that, but I think when we look at the level of participation, the level of registration as well as the level of debate, it was, I think, very well received and, I would say, at a higher standard than we've previously seen.

Ina Budh-Raja

Right, we're always raising the standard and a lot of work goes into that by the entire ISLA team and a lot of work goes into that by the entire ISLA team. That's all the staff at ISLA and the board members are very engaged this year in ensuring that. You know, as an association, we set out to design the panel discussions for the conference, which were really focused on ensuring that we bring together different subject matter experts from across the industry and represent the full value chain. And that's the challenge, right? It's not easy to achieve that full kind of representation across the entire market, but the intention is to spark debate and really ensure that you know the topics that are being brought to the panels are relevant to the industry at this given moment in time. They really, you know, represent the kind of hottest topics of the moment or, as one of the panellists put it, the kind of super trends. So my impression is that we did achieve that and the feedback has been extremely positive since, and credit to the team at ISLA for achieving it.

Andrew Dyson

We were delighted with the outcome over the days we were in Geneva. The outcome over the days we were in Geneva. I think that one of the things that I recognized is that, as an association, we represent a very broad church of institutions that range from big buy-side firms through to agent lenders, big sell-side banks and a huge and vibrant fintech community, and I think that what I noticed this year in particular is how that community comes together to create this vibrant, interactive and, at times, fascinating three, four days.

Conference views from the Clearstream team

Andrew Keith Walker

Of course, we had a full complement of the collateral liquidities and lending solutions team there, as well as our securities lenders and repo teams too, and so, giving their impressions of the conference, we have Banu Appas, head of Product Development, we have James Cherry, head of Business Development, we have Special Advisor Jean-Robert Wilkin and Head of the Securities Trading Desk in London, alexander Roque, and, of course, an old friend of the show, martin Seghetti, the Head of Coll. Liquidity and lending solutions. So this is what they thought.

Banu Apers

This is the strength of ISLA it brings a wide spectrum of participants from the industry. Let's start not only with the traders. Not only the traders, but also their product people, also their network relations, and also the newcomers to the industry. Let it be the technology providers and also the industry organizations, because during the ISLA events I have met my peers from the product management, you know, looking, discussing what is coming in our agenda for the year, and the heads. Then we were in meetings with the traders and, you know, the middle office, back office teams, how we can support them as our clients, as us being their clients. So it was a wide group of people coming together in one location is the strength of ISLA.

James Cherry

Yeah, I think you're absolutely right. And on your point about attendance, actually that's something I noticed or have noticed in the last couple of years. There's a super, increasingly broad participation, sort of geographically speaking. So more Asian names, more Middle Eastern names. It's not just the European crew contingent that are there, so definitely we see more diversity in the participants as well, which is great, really great for us, because you get to meet not only your clients but also, like the wider industry beyond. So absolutely fantastic event, really well organized.

Jean-Robert Wilkin

And the quality of the attendance. You know so many firms were represented. We had dozens of meetings among the Clearstream participants and there were a number of us. So that, on on the organization and on the event itself, it was superb and the atmosphere and the mood was really, I felt, very a bit a very business focused and people were optimistic towards building up new relationship, building up business, then, with very specific focus and I'm sure Alex will share with Alex and I. I might cover a little bit more the repo market and Alex what he's heard, the securities lending on the body. That was clearly focused on a couple of topics but a lot of interest for new counterparties and new business and new transactions to be done, however slightly different because of the market condition, which have evolved significantly since last year.

Alexandre Roques

For a certain time now, I would say. The securities lending and the repo market have been under pressure. The spreads are really compressed. Been under pressure, the spreads are really compressed. The same dynamic are at play that the one we discussed, I think, at the conference. The rates are still high, I mean they have peaked. There's been some cuts on the ECB and the Fed is expected to do the same thing, but still the rates are quite high and consequently the positioning of the buy side is more on the long side than on the short, which means that clearly there is less demand for short-cut rates.

Alexandre Roques

And it's always important to remember that a securities lending transaction is a result of another transaction and if there is not this like original transaction somewhere, there is no real need for securities lending. And that's what we see. There is still business, there is still volumes, but the spread are simply very much compressed volumes but the spread are simply very much compressed. And what does compressed spread do on the market? It highlights cost to do business, and cost to do business is haircut, matching cost, collateral management cost, custody cost. So it's all about optimization as of now of cost to do business and cost also to related to the distribution in general.

Marton Szigeti

I mean it was a great event right. So it was very full, it was very busy, there were a lot of industry participants there and, as you say, just a really broad cross section. It was great to see some of the Middle East and Asian market participants turn up as well. So it was more than just the European ISLA event and that's quite helpful because we do do a lot of work in Asia and the Middle East, so it was helpful to be able to connect with clients that we don't normally see in Europe. I think a lot of conversation around regulation, as you can imagine, different ways of managing regulation, regulatory ratios important to our banking clients, and that kind of fits really in our wheelhouse as well. When it comes to our lending program, we have this commissionaire model and that's very attractive to this. It provides a level of credit enhancement or counterparty enhancement, but a real focus on better access to corporate cash, better access to term assets and more innovative ways of managing those ratios, especially when it comes around how institutions fund themselves.

Regulation & impact on markets

Andrew Keith Walker

Of course, as you can imagine, regulation was a major topic at this year's ISLA conference, as it is at many industry conferences right now, because, of course, the cost of regulation is something that is hard to bear in an era where profits are down and the spreads are squeezed. And so, to kick us off, I asked Ina Bhudraja about her view, especially as someone who's a regulatory specialist at BNY Mellon as well as somebody sitting on various committees at the Bank of England her view of the regulatory outlook.

Ina Budh-Raja

We've had to, as businesses think much more holistically over the last few years. It's not just about securities finance, but it's how that fits into the whole ecosystem when it comes to regulation. So how do we solve for it? And, as you say, the regulatory reform that's taking place, it's all-encompassing, it's capital, it's sustainability, it's settlement efficiency. Everything is evolving and I think, as a securities finance industry, we've heard a lot over the years around how these regulations will impact and where they present challenges will impact and where they present challenges.

Ina Budh-Raja

You know what we're seeing now and I think what really came through in the panel discussions was the fact that you know the value chain. The entire value chain is laser focused now on optimization, right? So whether that be revenue optimization or capital balance sheet optimization or even, you know, operational optimization, that's the focus and we've moved from, I guess, looking at it and talking about it to solving for it. And you know we've all heard about different solutions evolving in the markets, particularly for solutioning for capital and balance sheet constraints and scarcity debate. That was discussed on one on the panels and we're all familiar with the discussion around. You know what are those solutions. Is it pledge, is it CCP, is it TRS? Is it Thetix?

Ina Budh-Raja

I think what we're seeing now is, you know we're at an active take-up stage, right, development of these solutions is much more real and, in a way, even where regulation isn't finalized and we don't know the final outcomes, the market's moving forward anyway to solve.

Ina Budh-Raja

Right, we don't have clarity on a number of aspects, including, you know, the Basel reforms, but we have to get ahead and solve. So I think what we're seeing now is a lot of practical action and actually, interestingly, not only on the sort of borrower broker side, but also on the beneficial owner side. We heard from the Global Peer Financing Association in one of the panels and you know it's evident that beneficial owners are much more engaged in their lending programs with their agents. Right, the agents are solving for their clients, but working in partnership and collaboration. And certainly I see that from the BNY side we are very actively involved with clients who are not looking at lending programs, as you know, sort of passive products of the past. You know that historic trend of sort of engaging a lender and leaving them to it is no longer there and we're seeing beneficial owners much more proactively engaged in the outcomes of their program and, you know, focused on utilization and revenue, so I think a much more active market at all points in the value chain.

Andrew Keith Walker

Well, leading off from Ina's comments there, I put similar thoughts to James Cherry. From Ina's comments there, I put similar thoughts to James Cherry, alexander Roque, jean-robert Wilkin and Banu Appas to see what their conversations around regulations were like while they were at ISTA. And this is what they thought.

James Cherry

We talked a lot with clients about things like CSDR, cash penalties a little bit of a negative view there on maybe not working as intended. Super, super focused from the commercial banks on things like the regulatory metrics, like the things that we talk about in the podcast as well NSFR, lcr, rwas. There's a real focus from the commercial banks on finding access to liquidity that helps them manage their regulatory ratios.

Alexandre Roques

I'm going to say two things on the regulatory framework. The first thing is, our industry moves when there is a regulatory constraint. What I mean by that is you can see that when there is a regulatory mandatory process to apply, then there is investment in the IT capacity and then the regulatory to a certain extent do some good for industry in terms of making it moving forward in the right direction. I mean, you know, for instance, sftr, and even if it was, I would say, very painful and expensive to put in place, now you have actually all this data somewhere that needs to be optimized and used. I would say so there is aspects to regulation, at least to the development of our industry, which is positive. Now I will say that on the regulatory and just on this point. I'm sure Jean-Robert also can add a bit more granularity on this observation.

Alexandre Roques

Now on the Basel III head game, I think for me the big pressure point is related to RWA. The big pressure point is related to RWA. In a nutshell, it will force the borrower to add more capital, according to the counterparty he's trading or he's borrowing from. So if you are a borrower and you're borrowing from a beneficial owner, which is not hated and if you're borrowing I would say high yield type of bond and you give German moons as, and if you're borrowing I would say high-yield type of bond and you give German moons as collateral, you're going to have very high cost to do business and RWA will probably put the economics of the trade under pressure.

Jean-Robert Wilkin

In the same vein, not so much new regulation coming up but due to the market condition changing. I think one of the big team of the conference, in all the meetings I had and I'm sure Alex had the same from a different angle slightly, but on repo counterparties for example, I could feel really there is an interest to do balance sheet optimization. So reduction of cost in reducing the impact on balance sheet and ratio management. Alex just mentioned RWA, risk-weighted assets, lcr NSFR. You know everybody is really careful because spreads have compressed so there is less profitability on trade. So they need to be sure they're going to be profitable at least on the cost side and reducing the cost side. And for that you need to change the maturity of the transaction, the type of collateral you use, the counterparty, as Alex said.

Jean-Robert Wilkin

So this is very important. So balance sheet management is going to be crucial in the coming months and for 2024. Hopefully for us. You know we have just launched a new solution for balance sheet netting with the Eurex repo colleagues and so on. Lcr NSFR ratio looked much closer than before Come back. So very, very careful with that. So term transaction, evergreen, longer term transaction whenever possible over the months three months, six months so there is an appetite for that and that's really a big theme which came back in most of the meeting we had about counterparties looking for new trade, new transaction with existing or new counterpart.

Banu Apers

Similar to SFDR in Europe. We also have the SEC reporting, sfc reporting coming in on the US side, so we've been in conversations with working groups to understand what is the impact on our side. Then, looking at the digital annex to GMSLA, how it's going to impact us. One other area is the unlocking of the liquidity, although this is not driven by regulation, but this is driven by demands and also the possibility to make our business more profitable around it. Unlacking of liquidity, what it implies is that how can we get into new developing markets? So this requires formal product management, having a detailed understanding of the local market requirements. Having a detailed understanding of the local market requirements and also looking at new segments. Are the funds? Business usage will be the source of the liquidity, because we know that they are heavily regulated. There are certain limitations around their lending capabilities and how we can make them part of our ecosystem, the lendable pools in our industry. These are some of the areas that we are looking at it for 24 and beyond.

Andrew Keith Walker

So it seems the next couple of years are going to be really focused on optimization and better operations practice for liquidity and collateral management. And on that front, here's a few thoughts from other discussions at Isla, from James Cherry first, followed by Marty Seghetti, looking at some of the bigger developments on the horizon.

James Cherry

A lot of meetings we had with our borrowers over the few days focused on the ability to borrow assets on term, the story that we've heard around 35 days being the sort of your evergreen term target. Actually, this seems to be extending out now, so you've got moves from the Swiss regulators for the systemically important Swiss banks now pushing out that access to liquidity requirement being at 125 days. You've got similar rules in Japan. We have more borrowers now asking us for time horizons of 60 plus 90 days, not just the 35 days, but that's a real focus.

Marton Szigeti

We had a few quite specifics. We've recently gone live with ETF lending and that was a very interesting topic. I think it's a very fast-growing asset class. There's not a lot of specials. Securities lending houses are kind of struggling from the perspective of SEC lending revenue typically is down quite a bit this year. So the concept that we can become an ETF counterparty is also quite interesting to people. There are specials there. It's quite episodic, but you can earn some reasonable yield and then tools to capture and provide an incentive to certain kinds of corporates around. Green baskets also came up as an interesting topic. Our partners HQ and AX were were there and we caught up with them briefly. I think digital blockchain technology enhancements that type of thing is always a topic of discussion at these venues. Hqlax, specifically, is now quite far along right. There's a lot of big banks in the cap table, a lot of use cases and actually quite some volume growing on the platform. So it's always interesting to catch up with them to kind of see the conversations they're having with the banks.

HQLAx and blockchain update

Andrew Keith Walker

Well, as Christian, and I always like to joke. You know you're getting old if you can remember going to a conference where they weren't talking about blockchain, and so I'm glad Marty raised that. I am, of course, a massive nerd when it comes to blockchain technologies. I come from a tech background myself, and so I was delighted to catch up with Charlie Ainsbury and Elisa Potanen from HQLAX to hear a little bit more about some of the milestones they've passed this year.

Charlie Amesbury

I'm really happy to announce that this is our newly launched ANC Securities Lending Delivery vs Delivery product that surpassed that mark with borrowers, Goldman Sachs and HSBC facing Bank of New York as the agent lender. So that's been a real hit with our clients. It's our leading product to date and we're on course to have over 10 different banks trading that product, mainly for the intraday credit risk mitigation and the liquidity mitigation that it brings to the borrowers, but also brings some operational efficiencies on the lending side. But yeah, we're very happy with that. But also, not to be outdone, we're really happy to conclude our Series C funding round. We're really happy to conclude our Series C funding round. We welcome HSBC as a new investor who led the round. That was supported from contributions from our existing shareholders, so that has kind of added to the fuel to the fire. That will provide us with some extra funds to expand the HCLX platform, be them in new products or new regions, and generally support the growth of our client footprint.

Andrew Keith Walker

And now I want to come on to the big advantages, of course, of greater digitalization. We are living in an era of ever-increasing regulation and ever-increasing sets of machine-executable code for market participants so they can improve their data quality and all of that. But before we talk about those issues on the horizon, elisa, I want to come to you, because you've also launched a new service, haven't you? That seems very timely given the boom in repo right now. That's been reported month on month by Eurex, so tell us more about that.

Elisa Poutanen

Yeah, so this is definitely an exciting development on our side, so you might more about that. Yeah, so this is definitely an exciting development on our side. So you might have seen a press release going out last week and we successfully completed an end-to-end testing of a cross-chain repo trade settlement and that means that we can settle repo trades between two platforms in this case Finality and HClx platforms at a precise moment in time and at the same time demonstrating interoperability between those two platforms. So with Finality this is not just a proof of concept or end-to-end testing that we're doing for the fun of doing it Our plan is really to launch a wholesale cross-chain repo solutions in Q4 this year, obviously subject to certain regulatory approvals, but we're very well advanced in those, and what's obviously nice to mention here in this context of the GFF podcast is that the trade was tested and submitted in Eurex's repo F7 platform, then the collateral was earmarked on the HPLX ledger and on the other side, on the payment leg, the cash was earmarked on the Sterling Finality Payment System testnet.

Elisa Poutanen

And this really paves the way and that's why we're so excited about this for a precise control and easy mobility of liquidity and collateral and ensuring that the clearing of a wholesale payment can happen in minutes, which just provides really unprecedented visibility and control. And as we are now able to provide or give the ability to settle repo transactions at precise moment in time, we are opening up the door to intraday repo market between the two ledgers and we have received a lot of extremely positive feedback on that. So, yes, we've had a busy start first six months of the year and we're looking for another busy six months to end the year with new products.

Repo update with Marc Poinsignon

Andrew Keith Walker

Elisa Poutanen there, and before her Charlie Ainsbury, and do make sure, if you come into the GFF, to stop by and say hi on the HQ LAX stand. In fact, if you're coming to the GFF, make sure you find me and we can get you on the show. Now, of course, someone else who'd been on the show way back in season one was Marc Ponsignor, who works across many different business divisions as part of the business development team, but is a specialist in the world of TriParty repo as well, and I managed to grab him to see what his view of the TriParty and developing repo world was like at Isla this year.

Marc Poinsignon

The focus on securities finance and market securities finance has been quite important. Obviously, there are a number of reasons for that. One of them is the ending of the quantitative easing and easy monetary policy, let's say, which impacts a number of players of different profiles in the market and gets them to turn to either interbank counterparts to access liquidity or to the buy side in general, but also public entities. We've seen a lot of growth with certain players, like ministries of finance, debt management offices, obviously, that have seen some of their remuneration on the cash be impacted by recent decisions by the central banks and therefore these players naturally come back to securities finance, naturally turn themselves towards market infrastructures, CCPs like Eurex, but also triparty agents to manage their repo transactions with interbank players and manage the collateral, let's say, in an efficient and optimized way.

Andrew Keith Walker

And also a lot has been made of the sort of intraday requirements for market participants now becoming even more important when it comes to the liquidity management, the collateral optimization and also the cash management. It seems like that's always been important, but now, given the sort of higher interest rates, inflation and more volatility in the markets, that's becoming a really important focus, not just on the sort of business optimization side, but on the tech side as well.

Marc Poinsignon

Yes, of course, For sure. I mean, with the increase in interest rates, certain tools to access liquidity or to cover temporary shortages of cash or securities during the day has increased right as a simple result of the increase in interest rates. So it's a matter to manage these costs and remain as efficient as possible. To manage these costs and remain as efficient as possible, it is need a matter of having the right tools and technology to identify and optimize your assets. And for sure we are talking about Isla earlier and the great conference we had in sunny Geneva. It was one of the main themes A lot of banks, which is the segment I cover, so let's say it's easier for me to talk about the banking institutions, be it commercial bank or investment banks.

Marc Poinsignon

A lot of these banks have optimization at the center of what they are doing. A lot of these banks have optimization at the center of what they are doing. Some of them are building central functions to optimize collateral across different desks and different activities and, ultimately, if you are able to put your collateral at the right place at the right time, where the haircuts applied on the collateral are lower place at the right time where the haircuts applied on the collateral are lower, Generally speaking, you extract a higher value out of your portfolio and you are able to retain a higher portion of your HQLA that is free for other utilization right, that is free to benefit your ratios, is free to benefit your ratios, that is free for lending, that is free to better manage some of your intraday needs in very qualitative assets or cash. So for sure, I mean optimization was a center theme in a lot of the discussions I had at Isla and I think the way the market is approaching it is twofold. As I said, one is to break certain silos between different activities or different areas of the bank to have kind of a consolidated approach, comprehensive approach to the topic of optimization of assets, optimization of liquidity, Okay.

Marc Poinsignon

And the second, let's say, key aspect is leveraging technology. So of course, Clearstream is a tri-party agent. There's a lot of work there to enable clients to have new tools also to optimize their collateral, even intraday, to be able to direct collateral in a certain way on certain trades that is friendly to their balance sheet ratios, but also to have the capacity not only to rely on our algorithm but also to rely on their calculations, their cost of funds, their, let's say, cheapest to deliver calculations, their cost of funds, their, let's say, cheapest to deliver calculations, to instruct us, as tripartite agent, to move assets in a certain way with different counterparts. And again, that's a function of technology, be it a technology we provide as tripartite agent, but also technologies clients are building internally or where they are using partners and vendors in the market.

ISLA Connect - networking & mentoring initiative

Andrew Keith Walker

Thanks to Marc Ponzignon there. Now you're probably familiar with Isla Connect, which is their networking group, which is also attended by the Women in Securities Finance Group. In fact, Ina Boudraja, who is the chair of ISLA, also leads ISLA Connect and is the co-leader of Women in Securities Finance, and our very own Banu Appas, of course, leads the Women in Securities Finance Group, Clearstream, and together they talk to me about the moves within the industry to promote diversity and inclusion and promote networking at the ISLA event.

Ina Budh-Raja

Our first dip into ISLA Connect started with the last conference in Lisbon and we've really grown the brand from there. So this ISLA Connect is essentially an idea conceived by the ISLA team and the board, which has been supported also by the ISLA DEI working group. So, you know, we have market participants that are supporting and the intention of ISLA Connects is really to bring the market together, you know, create a forum for people who have different, diverse skill sets to come together and learn about the industry, engage with others and network, build their networks and further their opportunities in this industry, with the long-term objective of creating a trajectory sorry, a pipeline of talent for this industry as it goes forward and we're seeing that different skill sets are required as we move into the future and really ensuring, you know, the sustainability from a talent perspective, of the security financing industry.

Banu Apers

Starting with Isla Connect. It's one of the newly launched initiatives of Isla and this is a brand new development, trying to bring the ISLA firm representatives and also the newcomers to the industry to be part of the securities lending landscape. I have attended their breakfast networking events during the ISLA summit in Geneva and it was a very good opportunity, even even for me that I have certain years of experience to get to know my peers and also, more importantly, the younger people coming into our industry. It is a very interesting way of, in a relaxed environment, introduce each other, talk about their experiences and also see what is keeping them busy in terms of their day-to-day activities, what are their outlooks, and also nicely connect into the initiatives around mentorship.

ISLA & Clearstream work focus for the year ahead

Andrew Keith Walker

So it's time for us to start drawing some of these threads to a close, and so I guess we'll start off by going back to Ina Bhudraja and asking her about the outlook for Isla over the next year.

Ina Budh-Raja

Well, I think you know we will continue to see a rapid evolution of solutions on the capital side. Right on optimization, I think you know Basel will take shape both in the US, uk and more globally and as it does, the solutions that were already prevalent in the market will really evolve and become you know we'll see a wider adoption of those. So I think we will see much more movement on the CCP side. You know agency TRS is it still a question? Probably you know not We'll see that flourish over the next year. Also, pledge right we're seeing a greater adoption of pledge collateral arrangements and there was a lot of discussion around pledge back. What does that look like? What does that really mean for the market? There are different interpretations of it. I think we'll see more clarity around it for the market. There are different interpretations of it. I think we'll see more clarity around it. But also, you know there was a very interesting panel on digital and the transformation of the industry as we know it into more of a tokenized world, so tokenization of real world assets, and I think what was most striking from that panel discussion was the fact that the pace of evolution and adoption that's already significant in the market, you know, should not be underestimated and it's no longer a case of the if or the when. It's an activity that's already scaling up rapidly, right? So, you know, I think we'll see some interesting progress as we move into the next conference. I think we'll see some interesting progress as we move into the next conference.

Ina Budh-Raja

But, as you say, you know, the focus on optimization revenues is intense and we as an association are also focused on new liquidity pools and new markets. Right, the search for assets with high intrinsic value markets. Right, the search for assets with high intrinsic value. I mean that's leading us to new lender types, such as sort of platform brokers or, you know, retail aggregators, so not dealing directly with retail investors but with the platforms that represent them. That's a very interesting and growing area that you know we look at in the context of regulation.

Ina Budh-Raja

So how do we help this market evolve in that space in a well-governed manner that is in compliance with regulation and has the integrity in the project that we would like to see going forward and maintain? And then the other area of sort of unlocking trapped assets is the new markets that we see a potential in, markets such as Middle East, for example, and we had a lot of focus around growth in the Middle East, saudi in particular, but also other jurisdictions. We held a breakout session on Middle East which focused on Saudi and I think the role of the association there is around. You know how do we work with those markets and policymakers in the market on the ground to develop market structure that's really going to help them scale up their market and, at the same time, help the international participants engage with those markets in a regulatory compliant way. So that's a very interesting area that we're looking at currently and that's only going to grow.

Andrew Keith Walker

And also taking a view at the year ahead. Here's a few thoughts from Alex Roque, who heads the securities lending desk in London, from our special advisor, jean-robert Wilkin, and also from head of product development, banu Wappers.

Alexandre Roques

Ultimately, there is two reasons why borrowers are borrowing positions. The first one is to balance it management. You know pretty much Ratio and you know liquidity management of the bank, if I may say. And the second one is risk intermediation. And when I say risk intermediation it's been client intermediation, when they borrow in position not for themselves but to relend to the buy side. So now the balance sheet management is under pressure because of all this ratio and this Basel III.

Alexandre Roques

So now the trade is really about longer term term being able to be more flexible in type of collateral you can accept, uh, if you land like hqla, this kind of things, and so I will say that this demand is still here and is quite stable in a way, okay, even if the press have compressed, obviously, and I will probably say that the demand from the buy side is different.

Alexandre Roques

It's not about short coverage anymore, but it's more about financing position and what we've seen, what we have observed for the past year or so, is a decrease in the fees on the securities lending, but some sort of increase on the need for financing Because due to the market dynamics that are at play as of now, which are really already dependent about the rates, you know, basically it's all about where the rates are. You know, if the rates are high, then and if they are not expecting to increase, the position is not going to be on the short side. So I mean to make a long story short. Is the buy side on the driving thing? Yeah, they always are on the driving thing. They always side on the driving seat yeah, they always are on the driving seat. They always be on the driving seat.

Jean-Robert Wilkin

Now their demand is probably more on the financing and less on the securities lending Collateral optimization is going to become a real topic, and a real topic and a real item for investment in many, many firms. A real item for investment in many, many firms. You know the big guys, the investment banks and so on, the big players have already done some investment in collateral optimization and they pursue that and they try to take it even further, to refine their optimization. I think this is going to be more and more on demand and there are many service providers, software solutions, collateral agents like us, which provide bits and pieces to improve collateral optimization. So it's not easy to fix as an issue, but there is much to be won by participants in improving their collateral optimization. Therefore in reducing their costs and that's what we see, their costs and that's what we see Not much to be done in increasing your revenue but for the same revenue, increased volume and reducing costs as much as possible. And air cuts, as we say, for example, is a big cost. So if you can improve your collateral allocation through optimization and reduce the air cuts you give away. That's, for example, one way to improve your profitability. So collateral optimization for me is going to be a hot topic for the next 12 to 18 months, based on what's coming up.

Jean-Robert Wilkin

The other one, which is not innovation for me was being in the business for 30 years. But for younger people which have been in the business for less, maybe 10, 12 years, the big innovation will be when the ECB pulls away from the cash market, you know, when they stop being the central counterparty of all banks in Europe and where the cash markets goes back into the interbank market and so on. And it's a difficult thing to achieve for DCB. They have to progressively come out without creating too much trouble, but that, to me, that's a big change as well coming up. And keep in mind that for many young traders in our industry, they don't remember the time where DCB was not there as the central counterparty of all. You know, the interbank market has to be revised in the euro currency for sure, and that will be crucial not only for the intermediaries like us, for repo platforms and sec lending business and so on and sec lending business and so on, but also for banks and treasurers. They will have to go back to all their bits or to previous practices.

GFF Crystal Ball Predictions for 2025

Banu Apers

I think it will be a combination of how we can survive as an industry in a high interest rate area and also where the collateral scarcity concept being out of the picture anymore. So we have a certain level of liquidity in the market available and I know on the trading side, the teams are looking at it how they can get the best margin spreads out of the existing trading. So, from our perspective, I think, looking at pockets of opportunity, let it be in the developing areas, you know, developing markets, how we can access those ones, or looking at structured trades that can give you the best yield out of the activity. However, you know we need to be also very conscious is that regulation will continue to be around us.

Andrew Keith Walker

And no GFF show would be complete without some GFF crystal ball predictions, and season four is no different. So here are a few thoughts about what is coming from the chief executive of Isla, andrew Dyson, from our own head of business development, james Cherry, and, of course, from the head of collateral liquidity and lending solutions, marty Segeti.

Andrew Dyson

The first thing I'd say at the highest level, our industry, whether it's financial services or securities financing or securities lending, has never been more sensitive to imminent political changes. So we've known, obviously we've seen across the broader press that over half the world is voting this year and we're seeing that play out in European elections earlier on in June, where we've seen a shift to the right. That's going to change the way you get things done in Brussels because of the change in the composition of the parliament and their view on, if you like, the business outlook more broadly here in the UK. Their view on, if you like, the business outlook more broadly here in the UK. Depending on when you listen to this podcast we may be sitting in front of, for the first time, a conservative, not a conservative sorry, I'm going to do that again. We will be, for the first time in over 10 years, facing an environment that isn't a conservative government. So again, that's a change. And the big known unknown is what's going to happen in North America. People say to me why is that important?

Andrew Dyson

Well, if we then take a next step down, the biggest regulatory shadow, casting increasing sort of shadow over our markets, is the implementation of the bar framework. Now we've seen and I've discussed on previous podcasts how that's going to change fundamentally the way we think about certain elements of the way we trade securities, lending books. Now what we're now seeing is, whilst the implementation is about ready to go in Europe, there's a little bit of uncertainty around a delay here in the UK. In Europe, there's a little bit of uncertainty around a delay here in the UK and we've now got a situation in America where, depending on which political outcome we see, we could even see a watering down, a proposed watering down of proposals.

Andrew Dyson

Now, when we look at BAL, we need to understand is it designed for financial stability reasons ie, we want to make sure banks don't fail or actually was it designed more broadly to reasons ie, we want to make sure banks don't fail? Or actually was it designed more broadly to create a level playing field amongst the large trading blocks? And I think there's a concern that I'm seeing that by tweaking the implementation in different jurisdictions, the regulators could create competitive advantage for their institutions. So we're watching that very closely. So the bar framework is the biggest single thing that we're focused on because, depending on what happens next, our members will have to go in different ways to think about how they mitigate the extremes of that regime.

James Cherry

We always like to be, first and foremost, tuned into what our clients are telling us. So the things that I've mentioned today the commercial banks are telling us unequivocally that they need demand, require access to long-term, stable funding from certain sources of liquidity, so from the sovereign and public sector entities, from corporates. So our focus is building out our franchise there to facilitate this. Our clients, our borrowers on the lending side, are telling us that they require access again for similar reasons and same reasons, to liquidity on term. So we are amending our products to allow for this to happen. And, again, we're doing a whole lot of work on improving things like our haircuts and the way we map ratings outside in static data. So we are improving our products continuously.

Marton Szigeti

Our focus here really is as a service provider, right, and we have to go back to our core competencies. In a market where spreads are very thin, margins depressed, revenues are down and what have you? Right, we have to go back to our core competency as a service provider and we are ultimately a liquidity provider to the market and a collateral management provider to um to the market as well. So our job is to source liquidity and to optimize clients use of their own collateral um uh in in their trading activity. And I would say our focus therefore over the next couple of years is on the securities lending side. We are absolutely looking at building out, broadening or building out you could call it broadening the types of assets that we can lend. So we've recently added ETFs and that expansion can lend, right, so we've recently added ETFs, you know, and that expansion may continue but also broadening the collateral sets that we can accept on the other side of that. So right now, we can accept certain types of bonds. We want to expand the types of bonds we can accept. We want to look at accepting cash as a potential collateral source. We want to look at different cross-currency types of collateral that we can accept as well. And what that will do for our lending franchise is it will just make the assets that we have available to lend the liquidity that we can provide into the market, much more accessible for borrowers, right, and by accessible it means sometimes there is profit in a trade because you're matching a dollar with a euro and if that trade goes away, and rather you want to match the dollar with a euro, and if that trade goes away and rather you want to match the dollar with a JGB, if I can't accept JGBs as collateral, then I can't help you with that trade and I can't provide you that dollar liquidity that you need. So on the lending side, our job is really to build out the pools of liquidity that we have by increasing the number of assets that we can lend and then broadening out the collateral that we can accept on the other side of those trades to make that liquidity more accessible to the clients that are on our platform, and that's ultimately going to be the focus in the lending business.

Marton Szigeti

On the collateral side, we're very focused on enabling collateral mobility for our clients, right, and collateral mobility is about optimizing how clients can use their collateral and it's about providing access to different collateral pools right. So on the optimization point, we're investing very heavily in our algorithm and the algorithm is going to be then expanded in how it can optimize your portfolio. It's going to have lots of different optimization variables that get introduced now towards the end of this year and then through the rest of next year, and we're going to invest in data and automation. So we started with our digital collateral platform, Oscar, and that's going to then expand to allow trade matching, trade suggestion, what have you and around this will be various data tools. The focus of data really is to help you understand how well you're optimizing your collateral, so you can go and fill in a bunch of scripts and instructions for any algorithm to work, and then the outcome is just the outcome, Because if there's conflict in the way you program it, it's not going to optimize perfectly for you. The data that we're trying to provide you is to compare the outcome to your objectives so that we can show you how well you're optimizing and, in addition to showing you how well you can optimizing, eventually be able to recommend to you how you could optimize better by changing your own rules and by removing areas of conflict that are causing suboptimal allocation. So that's the one thing around optimization.

Marton Szigeti

With respect to access to collateral pools, you know we went live in Canada at the beginning of the year and we have now trades on that platform, which is a completely separate market environment to Clearstream, where we access that, where we help Canada manage its collateral by providing the tri-party platform without needing to have those assets in custody. We're working with several other markets at the moment so that then may come online in the next few years, but building on that strategy of being a local market provider when the assets aren't in Clearstream and bringing those liquidity pools online, the logical next step then, is to provide a level of interoperability from a collateral management perspective to assets in those pools. So if you're a client of our collateral management platform, you can instruct and identify assets in any market that you can then use right. As long as those are your assets, wherever they are, we want to be able to access them. We want you to be able to use them. We want people to get your value out of those assets.

Andrew Keith Walker

That really was an A to Z tour of the world of securities lending, repo and market infrastructure for the next year, and huge thank you from everyone here in the virtual studio to Ina Budraja and Andy Dyson, from Isla, to Bano Appers, jean-robert Wilkin, alexander Rock, james Cherry, mark Ponsignon from Clearstream and, of course, a big thank you to our friends HQ LAX, charlie Ainsbury and Elisa Poutanen. And oh, actually, before we go, christian, I need to ask you what about you and the year ahead, looking at new developments with central banks?

Christian Rossler

Well, I believe that, and you're going to be happy because we're going to talk about the ECB trials for central bank digital currencies, which finally is going to happen in the Eurozone. So I don't know how you guys are doing in England which finally is going to happen in the Eurozone. So I don't know how you guys are doing in England, but in Europe we are working on seriously testing the central bank digital currency, and so Clearstream is riding all the waves, so does our partner HQ and AX, and it's really the big topic on the central bank front.

Andrew Keith Walker

That is fantastic. I can't even make a prediction. We're just recording this a couple of days out from the election, so my answer to that could very well be anything from we might have a digital currency this time next week through to. Someone from dover is going to go out and cut the cable to the internet and by by the time you come back, we'll all be living like the stone age it could be, could go either way. Frankly, who knows um? And on that catastrophic uh predict, I'm on the hopeful side, obviously. I guess all that remains is for us to thank all our very special guests on the show this week, and also for me to thank my co-host for putting this show together and bringing all these people together to talk about the world of securities, lending and collateral management. Christian, thanks very much.

Christian Rossler

Thank you, andrew, I'm very happy to be back.

Andrew Keith Walker

Yes, it's good to have you back, christian, and we will be back next month with another show. And in the meantime, do check us out on our LinkedIn channel that's linkedincom slash company, slash Clearstream, where you can find our video clips and network with the people who have been in today's show as well. And until then, from me, andrew Keith Walker and the rest of the virtual studio crew, and from Christian, bye-bye, bye-bye, and don't forget, this show is brought to you by Clearstream Banking, one of the major sponsors of the GFF Summit each year in Luxembourg, and features members of the Clearstream team and special guests expressing their personal opinions, not the opinions of Clearstream as an organization. And, of course, don't forget that not only information in this podcast should be taken as legal, tax or other professional advice. See you next time.