Panel slides. Shadow Banking. David Carruthers, Managing Director, Securities Finance\ January 29 th 2014

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1 Panel slides Shadow Banking David Carruthers, Managing Director, Securities Finance\ January 29 th 2014

2 Key points Shadow Banking and Collateralised Lending are closely linked Full transparency across the chains of transactions can provide an accurate picture of financial system state But suitable and feasible scope of resulting regulator actions is less clear Markit response to FSB consultation recommends using existing infrastructure and transparency channels, strengthened and extended where necessary Most of the components data, infrastructure, messaging for a complete Trade Repository already exist across the industry \ 2

3 Securities Lending Market Transaction Web LENDERS BORROWERS Ø The size of the circles depends on the size of the balances Ø The more central the circle, the more central the counterpart to the market Ø The width of each line represents the total value of the transactions JUNE 2008 SEPTEMBER 2009 Diverse market Concentrated market \ 3

4 Collateralized lending the systemic risk spiral Systemic Risk Herding in fewer Asset Classes = Fewer effective funds, banks, trades Herding in Assets Gaming of Regulations Search for Yield Search for Diversification Collateral Values Increase Equity Release > Growth Money Supply Expands Asset Values Increase Credit Rules Relaxed / Gaming of Models Collateral Definition Expanded Local Risk \ 4

5 Securities Lending summary data \ 5

6 Repo Collateral USD triparty Significant use of Equities in USD Triparty repo, despite haircut level \ 6

7 ETP market Drill down transparency is available on more than 5000 ETPs \ 7

8 Liquidity & Repo rates From the current list of corporate bonds used in USD Triparty repo transactions Less liquid bonds tend to trade at higher repo rate More liquid bonds dominate collateral usage \ 8

9 Summary Markit response to FSB consultation recommends using existing infrastructure and transparency channels, strengthened and extended where necessary Most of the components data, infrastructure, messaging for a complete Trade Repository already exist across the industry Market participants are looking for liquidity and price reliability information for as broad a range of collateral as possible Industry and Regulators will need further joint effort to solve the systemic risk challenges of collateralised lending \ 9

10 Contact us For additional information please contact us: Website Phone U.S: UK: HK: \ 10

11 mines data pools intelligence surfaces information enables transparency builds platforms provides access scales volume extends networks & transforms business.

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