This Finadium report looks at a newly emerging conversation in prime brokerage on the Target Operating Model for financing. We evaluate the historical prime brokerage financing model in relation to new regulations, segmentation in prime brokerage and what a securities financing exchange may look like compared to existing market models. Our findings are the result of recent conversations with prime brokers, hedge funds and service providers. The report also benefits from conversations at recent Finadium conferences and panels.
As banks, brokers and beneficial owners begin to get serious about signing on to Eurex Clearing’s Lending CCP, we evaluate what’s required to go live. We spoke with early participants and evaluated Eurex Clearing and Pirum documents on the boarding and integration phase, IT, legal and risk requirements.
The securities finance industry is currently digesting the heavy meal that has been Basel III, CRD-IV, Dodd-Frank and related regional regulatory initiatives impacting the global market. These are not light appetizers at all. Rather, financial intermediaries are facing tough questions about how they will move forward in their business models. This article looks at the three main options facing market participants in their business decision making, some negative and some positive, and offers SunGard findings on market trends.
We’ve been watching trueEX for a while, and a recent hire of a former securities lending professional sealed the deal: this start up could potentially teach securities finance a lesson or two, or even three. Here’s what we’re seeing:
In this ViewPoint, we explain the respective roles of lenders, lending agents, and borrowers. In addition, we address some of the common misunderstandings that have arisen regarding securities lending and potential conflicts of interest, leverage, counterparties, collateralization of loans, use of cash collateral and cash reinvestment vehicles, the use of non- cash collateral and rehypothecation, and borrower default indemnification. We explain the mechanics of each practice, the risks involved, and how these risks are managed.
DataLend presents its top 10 earnings equities for May 11, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
We’ve come across several ideas in our travels lately that we thought were worth noting on these pages. They speak in particular to the needs of our clients in figuring out next steps in an uncertain regulatory environment and with changing client needs.
We’re seeing a hole in the market, one that we thought would be solved already but that remains an attractive opportunity for an institution able to take on some maturity mismatch. On the one hand are institutions with US Treasuries looking for short-term loans. The loan volume for these institutions has fallen heavily; some utilizations are down to 20% or 30% due to a desire for loans of just a day or three. On the other hand are broker-dealers and banks looking for loans over 30 days to meet Liquidity Coverage Ratio obligations. How are these two ends going to meet in the middle?
DataLend presents its top 10 earnings equities for April 27, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
A new report from Finadium provides a data-oriented overview of the securities lending industry in 2015 including the players, market size and regulatory drivers affecting participant behavior. Data are sourced from Finadium surveys in 2014 and 2015 and from market data providers.
The Wall Street Journal released an article yesterday, “Regulators Call for Short-Term Loan Changes to Handle ‘Too-Big-to-Fail’“, that may have seemed alarmist. It’s not. Here’s what’s going on.
DataLend presents its top 10 earnings equities for April 6, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
Reena Aggarwal, Georgetown University – Robert Emmett McDonough School of Business
DataLend presents its top 10 earnings equities for March 23, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
Trade repositories in securities lending and repo are emerging as new tools for regulatory officials to monitor and assess risk within financial markets. Realistically, these trade repositories will not come into existence for some years to come still but the planning phase is actively underway. The time is now for market participants to get involved and ensure that the future end result will have at least neutral, if not positive, impacts for their business. A new report from Finadium, “The Design and Impact of Trade Repositories for Securities Lending and Repo,” looks at the details.
DataLend presents its top 10 earnings equities for March 16, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
Just like the dynamic that we wrote about a few years ago of mid-tier broker-dealers benefiting from SIFI counterparty credit limits, we are now wondering if these same rules will help third party agent lenders, particularly those operating independently (eSecLending), as part of non-SIFI banks (Brown Brothers Harriman). This dynamic may also, and paradoxically, encourage the launch of all new third party agent lenders. Here’s where we are going with the argument:
DataLend presents its top 10 earnings equities for March 9, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
DataLend presents its top 10 earnings equities for March 2, 2015. This list is built on DataLend’s universe of more than 42,000 securities on loan.
2014 was a very active year for securities lending. A dizzying array of new regulations were proposed, discussed and evaluated; counterparty indemnification and margin rules dominated the debate. CCPs began to expand, with at least one CCP now able to accept buy-side market participants directly. Overall securities lending volumes declined while Asian volumes rose. This article takes a look at some of the main takeaways from the securities lending industry in 2014, and then a look at what’s ahead in the coming year.
A new report from Finadium looks at what netting rules are most important for the buy-side, including hedge funds, asset managers and institutional investors, as they work to best position themselves with bank and broker counterparties.
The Finadium Big Ideas Quarterly provides a summary of recent research, our upcoming report schedule and useful news.
The last day of conference sessions are not as well attended as the earlier ones, but that doesn’t mean there isn’t some interesting information. At the IMN Beneficial Owners Conference in San Francisco last week, one panel of predominately securities lenders was asked to predict the future shape of the business.
Clearstream held its 19th annual Global Securities Finance Summit in Luxembourg last week. Once again it was a huge event with some 850 registrants. There were some important takeaways in both what was said and what was not said. Here are our highlights.
During the CCP panel at the IMN Beneficial Owners Conference in San Francisco (which I moderated), there was an unspoken message: how do we break the news that eventually using CCPs may not be optional?
The Fed has published a staff report on the emergence of new banks that is sure to confound and distress some market participants. In the report, “Hybrid Intermediaries“, author Nicola Cetorelli argues that some of today’s nonbank intermediaries look very similar to earlier nonbank conglomerates that have become banks post-Lehman. BlackRock in securities lending is cited as an example. The subtext argument here is whether BlackRock and firms like it are SIFIs, should be forced to become bank holding companies, or receive some other form of bank-like regulation.
DataLend presents its top 10 earnings equities for January 19, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
This article is the second in our series on securities finance-related activity in China. We cover liquidity coming from the People’s Bank of China, derivatives trading and the growth of the yuan in international financial markets.
Finadium has released a new survey report, “Institutional Investors on Sorting Out the New World of Securities Finance.” This report is the result of conversations and data collection from 99 institutional investors worldwide including pension plans and Sovereign Wealth Funds.
DataLend presents its top 10 earnings equities for January 12, 2015. This list is built on DataLend’s universe of more than 42,000 securities on loan.
China’s securities markets are beginning to open; any recent scan of the news can show the link between the Shanghai Stock Exchange and the Hong Kong Stock Exchange, a new OTC derivatives clearing platform at the Shanghai Clearing House and continued excitement about international access to Chinese issues. In this series, Securities Finance Monitor will explore the evolution of China’s markets with a focus on securities finance and collateral.
Finadium has released a new report in our Finadium for Investors series, “Perspectives on Direct Borrowing and Lending”. The report defines Direct Borrowing and Lending, sizes the market, evaluates pros and cons and offers recommendations for getting started.
2015 is shaping up to be the year of the securities lending CCP; banks, agent lenders and beneficial owners are all now preparing themselves for this important market move. The driver of change is that Basel III, Dodd-Frank and EMIR are starting to sink in, and borrowers need to optimize their capital usage. While repetitive to say, it remains true that the more seriously banks look at capital, the more they are evaluating all available alternatives for capital cost management. Market attitudes towards securities lending CCPs have evolved as well, and in 2015, a part of the capital solution will be found on these platforms.
On December 11, 2014, SEC Chair Mary Jo White gave a speech at a New York Times conference in New York, “Enhancing Risk Monitoring and Regulatory Safeguards for the Asset Management Industry.” She had some overdue comments on asset managers and transparency, particularly around securities lending activities. We review her comments and add what we would like to see.
DataLend presents its top 10 earnings equities for January 5, 2015. This list is built on DataLend’s universe of more than 42,000 securities on loan.
The Financial Stability Board has released 10 comment letters in response to its consultative document, “Regulatory Framework for Haircuts on Non-Centrally Cleared Securities Financing Transactions”, initially published in October 2014. These comments are good meat on the bones of the FSB’s initial proposal and should be heeded. Here are some main takeaways:
From FINRA’s 2015 Regulatory and Exam Priorities Letter:
A new and complex dynamic has emerged in securities finance, whereby institutional investors are pulling assets from long-only fixed income portfolios in their agency securities lending programs. These funds are going into unconstrained fixed income portfolios (or nontraditional bond funds), now a US$153 billion investment category, up from US$51 billion in 2011, according to Morningstar. This multi-faceted issue moves the responsibility for financing around and increases risk, hopefully with the outcome of also increasing rewards. It also brings up questions in institutional investor thinking about the process and policies in their securities lending programs.
Below is a list of the top-earning equities for securities lenders in 2014. DataLend scanned its universe of more than 42,000 securities on loan to find those securities with the most expensive financing positions in the U.S., Canada, Europe and Asia. Financing costs are determined by taking the total on-loan value of a security and multiplying it by the volume-weighted average fees to borrow that security, then converting the product of those numbers to a dollar value.
DataLend presents its top 10 earnings equities for December 8, 2014. This list is built on DataLend’s universe of more than 42,000 securities on loan.
By Chris Benedict, Director, DataLend. Lower oil prices due to a glut of supply and a strong dollar are an early Christmas gift to consumers but a big lump of coal to shareholders of many energy companies. Oil has dropped by a whopping 35% from its June highs of $102 per barrel, and the stock prices of many energy companies have followed suit. The worst hit were the shale oil firms, offshore drillers and oil companies with high debt-to-equity ratios. As the longs sold, the shorts pounced on the opportunity and the share prices of some companies dropped to five-year lows. Unsurprisingly, utilization and fees to borrow have spiked in these names as their share prices tanked. In this article we’ll take a look at some companies that have been the worst hit and are among the most actively traded in the securities finance market.
DataLend presents its top 10 earnings equities for December 2, 2014. This list is built on DataLend’s universe of more than 42,000 securities on loan.
Securities lending top 10 earnings equities – November 25, 2014. DataLend presents its top 10 earnings equities for November 25, 2014. This list is built on DataLend’s universe of more than 42,000 securities on loan.
DataLend presents its top 10 earnings equities for November 19, 2014. This list is built on DataLend’s universe of more than 42,000 securities on loan.
Federal Reserve Governor Daniel Tarullo gave a speech last week on liquidity regulation at The Clearing House 2014 Annual Conference. He laid out some pretty big themes, including the value of regulation, why Lenders of Last Resort (LOLR) matter and why the Federal Reserve was created to begin with. He also talked about recent actions in strengthening liquidity regulation in the financial system. His conclusions were that regulators are preparing to be broad-sweeping in their capture and regulation of financial market liquidity wherever it may occur.
Last week we published a new research report on the evolution of the agency lending business. One section of that report covered our thoughts about pricing in agency lending. We’d like to revisit this idea and see where it might go.
The Financial Stability Board has released a consultative document, “Standards and Processes for Global Securities Financing Data Collection and Aggregation.” Most of this is no surprise and the actual data elements were expected, but there are some twists and turns in the road to good results. We highlight the issues most likely to cause trouble for both market participants and regulators.
DataLend presents its top 10 earnings equities for November 12, 2014. This list is built on DataLend’s universe of more than 42,000 securities on loan.