European Securities Lending Panel

Joseph Gillingwater, Global Head of Fixed Income Securities Finance Trading for Northern Trust Banking & Markets, recently joined a panel of industry peers to discuss the key trends unfolding in the European Securities Lending landscape as part of a Securities Finance Times discussion.

The following is an extract from the European Securities Lending Panel as featured in the Securities Finance Times. See here for full article.

How do you assess the performance of European securities lending markets over the past 12 months?

Securities lending markets have had a lot to contend with over the past 12 months, as stubborn inflationary pressures prolonged global higher-for-longer interest rate narratives, while geopolitical pressures added to uncertainty. Fixed income demand and revenue remained healthy with collateral upgrade trades continuing to be well-sought. Indeed, equity valuations continued to rise after the US elections, with the Republican administration expected to be softer on bank regulation. This rally resulted in added funding pressures over year-end with banks having to contend with global systemically important banks (G-SIB) score pressures. In short, this increased the demand for highly rated core European sovereign issuance.

Equity lending flows declined as elevated stock valuations meant investors remained heavily skewed to the long side. General collateral and hard-to-borrow volumes were impacted as a result, with revenues pressured for much of the period. However, activity rebounded in the first quarter of 2025 with significant market turbulence driven by uncertainty over the direction of US trade policy. President Trump’s announcement of reciprocal tariffs on 2^nd April triggered a sharp equity sell-off and spike in volatility, resulting in more concentrated borrowing demand.

What pressures and opportunities have recent regulatory initiatives created for your securities lending business? 

Like recent years, regulation has continued to shape the wider industry with the new US administration expected to ease the regulatory burden on banks. This could lead to some dislocation versus international peers, potentially disadvantaging non-US banks most active in international markets. Most of the focus remains on the Basel III Endgame, and clarity whether the Trump administration will alter the Basel rules or even mark the “Endgame for Endgame”.

While delayed for 12 months, the Securities & Exchange Commission’s (SEC) mandatory clearing rules require significant attention and staffing resources. Securities lending transactions are out of scope, though cash reinvestment desks partaking in US treasury repo transactions will need to ensure full documentation is in place for compliance in June 2027.

Lastly, settlement efficiency remains a key theme after Canada and the US successfully adopted the move to an accelerated T+1 settlement cycle in May 2024. In contrast with prior concerns around settlement discipline, the relatively smooth North American process paves the way for other markets to adopt the same measures, with Europe and the United Kingdom confirmed to transition in October 2027, benefitting from “second mover advantage”.

How are geopolitical and macroeconomic events shaping your business decisions? How do you see these changes shaping the securities finance market overall?

Elections in much of the world prompted ongoing market nervousness, with the new US administration posing a degree of volatility across international markets. European sovereign bonds subsequently sold off in wild fashion during the latter part of the period as uncertainty around US defence policy led to historic fiscal expansion efforts. Germany was forced to materially increase defence spending, with significant new Bund issuance driving sovereign bond yields meaningfully higher. Indeed, the 30 basis points one day increase in the 10-year German Bund was the most since the fall of the Berlin wall, back in 1989. The lingering war in Ukraine and more recent Israel-Palestinian conflict only added to heightened concerns around market risk. These instances broadly prompted to a flight-to-quality, with a notable bid for dollar-denominated bonds.

How do you assess the outlook for European securities lending markets for the remainder of 2025 and into 2026?

Securities lending activity remains resilient in the face of numerous headwinds and regulatory changes. Traditional reactive flow remains somewhat subdued with moderate specials demand and a lack of corporate events and IPOs. Moreover, well-telegraphed central bank policy and adequate market liquidity leads to narrower fees across the bond lending space. However, lenders are finding niche opportunities with more focussed strategic initiatives coming to the fore. Collateral upgrade trades should remain well-sought as banks contend with funding ratios and seasonal financing pressures. Across both fixed and equities, we expect the trend of alternative collateral structures to remain in place, benefitting clients able to look down the collateral credit curve and adopt segregated structures which align with the agent lender’s evolving regulatory capital framework. These types of structures typically improve a beneficial owner’s attractiveness, presenting significantly higher utilisation and elevated lending fees.

Meet Your Expert

Joseph Gillingwater

Global Head of Fixed Income Securities Finance Trading, Northern Trust Banking & Markets

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