Citi has added ETFs to the list of instruments it accepts as collateral in its agency securities lending business.
The firm will use ETFs that appear on Markit’s IHS collateral lists to identify eligible equity and fixed income vehicles.
The firm described ETFs as a relatively untapped source of collateral and said that the updated Markets in Financial Instruments Directive and other regulations meant European institutional investors were looking for ways to diversify their pools of collateral to meet increasing margin requirements.
The move was welcomed by ETF provider BlackRock. Citi quotes Patrick Mattar, head of BlackRock’s iShares capital markets business in Europe, the Middle East and Africa (Emea), saying: “Having a major custodian, such as Citi, accepting ETFs as collateral is further proof that investors are increasingly seeing ETFs as a valuable instrument in securities finance.”
He added: “As more people discover the utility and flexibility that ETFs can bring to portfolio management, we expect to see a further acceleration in the growth and maturity of the European industry.”
David Martocci, global head of agency securities lending at Citi, said: “As the ETF industry continues to mature with increased levels of supply coupled with greater transparency enabled by recent regulatory requirements, beneficial owners and borrowers can benefit from the liquidity and portfolio diversification offered by ETFs while retaining sufficient levels of transparency and efficiency required to maintain high-quality collateral.”
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