Officials at the Financial Stability Board (FSB) have
published more details on plans to collect data on non-cash
collateral re-use activity in the securities finance
The international body, which makes recommendations about
the global financial system, agreed on set of
measurements and metrics this week used to calculate
non-cash collateral re-use.
FSB members (which include the world’s leading
central banks), will be expected to gather data from market
participants on such activity with breakdowns by sector and
type as well as re-use concentration measures.
This will be transmitted to the FSB for global aggregation
from January 2020.
The term re-use applies when a market participant, such as a
bank, receives securities as collateral in one transaction and
sells, pledges or transfers this collateral in a second
Collateral may be received by a market participant as a
result of a variety of securities finance transactions, such as
reverse repos, securities lending, margin lending and
The use of non-cash collateral for securities lending
transactions varies markedly around the globe.
In Europe, Canada, and Australia, for instance, non-cash has
always been the dominant form of collateral, while in the US
loans of securities have traditionally been transacted
primarily versus cash.
The FSB's plans run alongside efforts by national and
regional authorities to get a clearer view of the securities
finance industry, which is considered opaque by many
European securities watchdog ESMA is leading the
implementation of SFTR, which will require firms to report
details of stock loan and repo transactions, including
collateral re-use, to trade repositories.
In the US, the Office for Financial Research (OFR) has
launched a pilot project to fill gaps in data with a focus on
bilateral repo markets and securities lending markets.
Similarly, in Japan, the Bank of Japan and Financial
Services Agency conducted a pilot data collection on Japanese
financial institutions’ securities financing
activities in 2015.
As the FSB points out, the re-use of collateral plays an
important role in the functioning of financial markets by
increasing the overall availability of collateral and cutting
transaction and liquidity/funding costs, since a given pool of
collateral assets can be re-used to support more than one
However, according to the regulator, collateral re-use may
also pose financial stability risks, for example by
contributing to the build-up of excessive leverage of
individual entities and in the financial system as a whole.
It also increases the interconnectedness of market
participants, due to chains of transactions involving the
re-use of collateral, which may create a risk of contagion
where fails to deliver re-used collateral by one party may
potentially cause additional fails.