Securities Financing:
A Critical Business Heading to the Shadows?

By Karen Shaw Petrou

Securities financing transactions (SFTs), which play a critical role in the financial-market infrastructure, may seem one of the scariest parts of global finance given their complexity and volume—daily turn-overs of as much as $5 trillion are involved (Toomey and Cummings, 2012). Fears grow even higher when the interconnection between SFT and the tri-party repurchase market is evaluated, with regulators particularly continuing to worry about the potential for fire sales (Begalle, Martin, McAndrews, McLaughlin, 2013) across the sector that could restart a Lehman-style bankruptcy (Dudley, 2013). In this article, we review the array of pending initiatives designed to reduce SFT risk, concluding that there are so many proposals aimed at so many risks that the cumulative result of all these actions may well be to quash SFTs at regulated institutions. Without prioritization and focus, the array of pending rules could have the unintended effect of exacerbating shortfalls in high-quality assets held by regulated institutions, creating renewed systemic risk already—and rightly—worrisome to global regulators (Committee on the Global Financial System, 2013).

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