Markit is trying to bridge the gap between exchange traded funds (ETFs) and securities lending collateral, by launching ETF collateral lists.
Despite possessing many of the features needed for high quality collateral, more than 55% of polled delegates at Markit’s London securities finance forum currently do not accept exchange traded products as collateral.
ETFs have gained increasing popularity amongst investors, with global ETF investments outperforming hedge fund investments in the second quarter.
Positive investment patterns, however, have not yet translated into wider acceptance within the collateral management context.
Markit’s ETF collateral lists aim to minimise this conceptual gap, by highlighting fixed income and equity ETFs that track the most liquid indexes within developed markets.
The lists, which were built using Markit’s ETP analytics and encyclopedia solutions, include over $516 billion of ETFs, which track assets that meet generally accepted collateral rules.
The majority of the assets held by the funds ($480 billion) are equity products.
However, the value of ETF assets in lending programs has stayed flat at $140 billion over the last 18 months.
Wider acceptance of ETFs as collateral would enable more ETF assets to be made available through securities lending programs.