Securities Lending Outlook for 2025
The securities lending industry is set for an eventful 2025, driven by macroeconomic shifts, geopolitical developments, regulatory changes, and evolving market structures.
Persistent inflation and uneven global growth are likely to keep markets relatively volatile, while diverging central bank policies on rate cuts will create regional and hedging opportunities. Investors should recalibrate expectations as major economies navigate a complex monetary environment.
Securities lending in the US will likely be mixed — M&A activities could rise amid lower interest rates and a more business-friendly regulatory environment, but equity markets may experience heightened volatility, influenced by monetary policy and the Trump administration’s economic agenda.
As EU-US trade negotiations continue under the US administration, as well as the ongoing tensions between the US & China, this may drive sectors such as carmakers and exports to come under increasing pressure. All these have the potential to drive some directional demands within the securities lending market.
In Asia-Pacific the lifting of South Korea’s short-selling ban in March 2025 is expected to drive increased lending activity. Taiwan and Hong Kong will also remain buoyant markets with strong securities lending demand.
We expect the demand for high-quality liquid assets (HQLA) to remain robust but with increased demand from the borrowing community for further collateral flexibility as well as adding increased duration to trades.
Overall, 2025 is expected to be a dynamic year for securities lending, with macroeconomic, regulatory, and geopolitical factors shaping demand and investment strategies.
In the backdrop of the demand remains an oversupplied lending market, it is likely that there will be further divergence between those that achieve above market revenue returns from lending activity, and those that see reductions in their returns due to greater need from borrowers for the optimal securities. Beneficial owners with wide collateral guidelines, stable positions and flexible tenors can drive the best returns.
Regulatory Highlights:
Basel III
Basel III endgame will continue to focus attention for the whole industry. In particular, the disparity in rules between the US, UK and EU has raised concerns that some banks will be penalized more than others. Continued advocacy keeps this issue front and center and will see the efforts of CCPs remain in the spotlight as a potentially important option for industry players. It could also see pricing adjustments and shifts in demand as the potential increased capital requirements impact certain banks more than others.
US Treasuries Central Clearing
Whilst securities lending is out of scope for the UST Mandatory Clearing rules, it will impact the industry as a whole since all repo trades executed under a master repurchase agreement (MRA) will be subject to the rules. This will include agency lending cash reinvestment desks, which require a lot of upheaval on current processes, documentation and compliance.
With the new administration in the US and their focus on deregulation, it is still to be seen how the regulatory framework globally develops and what impact that could have on the financial sector more broadly.
For more about this topic, you may also read our article here.
Other key themes for 2025
Cost focus
As capital rules have continued to be implemented, banks and broker dealers will be increasingly focussed on the regulatory capital costs of each trade. Solutions such as pledge and central clearing will therefore be an increased focus for borrowers. With no clear ‘winning’ solution to the capital’s constraints that banks face, it will be imperative for agent lenders to invest wisely, ensuring they balance the cost of development with the returns for their clients.
While some cost pressure is likely to be alleviated by falling global interest rates, increased regulatory pressure to automate and invest in technology will form another source of headwinds. We continue to see more technology providers enter the market and with limited resources, businesses cannot be expected to onboard all providers. Therefore, once again in 2025, business should focus on the return on investment, the efficiency gains of technology and the effective use of providers they onboard.
Greater efficiency and interoperability are key demands from the market; it is vital that we move away from market silos.
Settlement Efficiency and T+1
Following the implementation of T+1 in several Americas jurisdictions, the industry will turn to expected implementation in the EU, UK, and Switzerland in 2027. 2025 will therefore be spent assessing the impact on processes and preparing to build and incorporate new solutions in 2026. T+1 could well require a change in current market behaviours, and this will not happen overnight. Therefore, it is important for the industry to prepare early and work with all market participants to ensure education and readiness.
For more about this topic, you may also read our article here.
Our priorities at BNP Paribas
At BNP Paribas Securities Services’ business, we will be further strengthening and improving our platform to serve clients and counterparties in 2025, launching improved booking mechanisms, collateral optimisation, and client portals, as well as measures to extend our cash reinvestment programme. We have made significant investments over the last few years and will continue to do so to ensure our agency lending and agency repo and cash (ARC) solutions are agile and able to offer a full securities financing suite of products. The development of our market leading client web portal allows for state-of-the-art reporting and more flexibility for clients. We have also made significant investments into our proprietary trading platform to enable further automation.
New and emerging markets are an area of growth for us, as we continue to assess and expand into regions experiencing major growth cycles and support our clients as more securities lending opportunities arise. Added to the onboarding of new inventory to the market we aim to bring more liquidity to our borrower base.
While 2025 brings uncertainty, we are excited about the months ahead and will continue to work with our clients across EMEA, APAC and Americas to explore opportunities to expand and enhance their lending programmes.