We assess prime broker estimated revenues for 2014 from physical financing and margin. We build on the methodology for finding prime brokerage revenue first published in “Which prime brokers are making the most money in securities lending?”, September 2013. This analysis includes further thinking about the value of internalization and the role of synthetic financing. There are some new winners in this year’s numbers. But in a declining physical market, is anyone really a winner?
An excellent post in COO Connect “Regulation of repo and securities loan in Europe will increase the burden of reporting” (October 6, 2014) by Dominic Hobson caught our eye. He writes about the creation and complexity of European trade repositories for securities finance and how it impacts fund managers.
Even at the once level headed Wall Street Journal, it seems now that any perceived wrong doing by banks is an opportunity for a headline article. This time around the topic is dividend arbitrage in securities lending, which has been flogged, abused and otherwise derided for years. Is it regulatory arbitrage? Of course it is. Is it legal and will be it commonplace until tax authorities harmonize their rules? Yes again. Unfortunately the WSJ has thrown mud into otherwise clearer waters.
Finadium held an event in London on Monday, September 22, entitled “Building New Business Models for Repo and Secured Funding”, hosting some 50 attendees. While some of the topics we heard were overlapping from other recent events, some new ideas came up too. Here’s a summary of what we discussed.
The topic of netting for repo, securities lending and prime brokerage has been alternately praised and attacked in financial markets. Proponents argue that it strengthens risk management by encouraging safe, balancing transactions by banks and broker-dealers. Critics say that netting hides risk and can be manipulated to suit the needs of the institution. Which arguments have merit and which are based on heresay and rumor?
A crowd of 30 generated a robust conversation at Finadium’s first securities lending and repo update last Thursday, September 18th in Zurich, sponsored by Zurcher Kantonalbank and Eurex Clearing. We summarize what we discussed, what we learned and where we see things going.
The conversation on the new securities lending CCP model is changing – its not so much in the future tense anymore but is moving to the present. Our panel at IMN’s Beneficial Owner’s Conference in London yesterday cemented that fact. But how soon is too soon to actually expect securities lending CCPs, that allow beneficial owners to participate directly, to be regular fixtures in the market?
We note seven events on securities finance coming up in Europe, starting with IMN’s Beneficial Owner event and ending with Collateral World, including two events of our own. This article offers a summary of where we will be, where we won’t be, and what attendees can expect. Then we wrap up the month by heading to SIBOS in Boston.
SunGard has released a new white paper, “The potential benefits of regulatory and market change for securities lending.” From the introduction:
As securities lending CCPs gain momentum, a critical feature, perhaps the most important feature at this point, is their ability to accept beneficial owners as direct participants without having to post margin or contribute to the default fund. To paraphrase Bill Clinton’s 1992 campaign slogan, “its the beneficial owners, stupid.”