ETFs as a Source of Collateral

Markit has introduced a new exchange traded fund (ETF) initiative to help encourage the use of the instrument as eligible collateral.

The proof of concept, unveiled recently draws on the information services provider’s expertise in both the securities lending and ETF markets.

Markit’s ETF service provides reference and analytics data for over 6,000 exchange traded funds around the world. It has collaborated with key industry participants across securities lending, tri-parties and ETF issuers to define criteria that can be used to derive a schedule of ETFs that can be broadly accepted as collateral by the industry.

Markit commenced by offering two independent proof of concept schedules for equities and fixed income which will allow borrowers to better optimize their collateral management function by being able to post a wide range of ETFs as collateral.

At the same time, it offers lenders the benefit of accepting ETFs as collateral while not substantively changing their collateral risk. Currently, Markit is working with tri-party collateral agents to deliver the industry with an automated service to manage the lists which should help foster the greater use of ETFs as eligible collateral in a cost effective manner.

Global Custodian speaks to Andrew Jamieson, managing director of iShares, BlackRock, about the new initiative.