We came across some interesting data that presents some subtle revenues dynamics at play in the securities lending market. The issue at hand has to do with cash vs. non-cash collateral, what drives demand and how agent lenders are generating profits.
DataLend presents its top 10 earnings equities for November 9, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
This paper looks at the contributions of securities lending to financial markets with an emphasis on transaction costs, market liquidity and incremental revenue. We identify US$61 billion in increased annual investor costs that would result from a loss of securities loans on major international equity markets if securities loans, and hence short selling, were no longer available. This report is available for free download courtesy of State Street.
The Basel Committee on Banking Supervision (BCBS) has released a consultation document that looks to operationalize what we’ve seen previously from the Financial Stability Board on haircuts for Securities Finance Transactions (SFTs). We provide a read-through of the document and highlight some areas we see as possible concerns.
We return to the US this week after two successful events in London and Zurich, covering collateral, funding, securities lending and repo. Here’s what we learned, combining findings from both locations.
DataLend presents its top 10 earnings equities for November 2, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
The cost and availability of indemnification of beneficial owners by securities lenders is a perennial topic at conferences. But it is not clear that the dire warnings about cost and availability have really come to pass. There is a developing trend in sec lending that could change all this. It is the shift toward more non-cash collateral. These trades absorb more RWA (than cash collateralized deals) and could put agent indemnification into play.
DataLend presents its top 10 earnings equities for October 19, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
We are frequently asked who is coming to our events. As we are less than two weeks from holding panels and receptions in London and Zurich, here is how things are looking.
Finadium has released a new research report, “Asset Managers and the Uses of Collateral in OTC Derivatives, Securities Lending and Repo: A Finadium Survey.” This report looks at the progress made by fund managers and insurance companies in preparing for a future landscape where collateral may be in short supply, and cross-asset collateral management is a requirement.
It seems that the era of mergers between physical and synthetic finance businesses is finally upon us. While client preferences may lean towards one type of trade vs. another, there is no question that regulation is the major driver of change. When faced with a request for a securities loan vs. a total return swap, the swap may be both easier and less capital intensive. In the long-term this will create broad-based new dynamics in financial markets. But in the short-term, our clients are working to manage complex implementation and technology changes.
Securities lending used to be a relationship driven business to the point where if you didn’t know someone, you could not borrow a security if the world depended on it. New forces have entered the market however and the old order has seen its influence reduced. We wonder though, how much has really changed vs. how is the status quo of the mid-2000s holding on? Here’s what we are seeing:
The Financial Stability Board (FSB) issued a press release outlining what they discussed at their Sept. 25th meeting in London. Leverage and liquidity is still on their mind. Securities lending is also a hot topic, and while the FSB has been writing about this for years, it seems like they are starting to focus more attention on wrapping up some longstanding business.
Finadium has released a new research report on blockchain, a potentially exciting new technology in financial markets. Blockchain promises to be revolutionary, disruptive and a way to fundamentally change financial services. While proponents may be correct about the technologyʼs potential, the buzz can be confusing; how much of the publicity is hype versus reality for collateralized trading markets including securities finance and OTC derivatives? We offer a practical look at how blockchain could be implemented across complex capital market activities including liquidity and capital management.
DataLend presents its top 10 earnings equities for September 14, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
The dizzying array of new regulation in financial markets is forcing change on all market participants. Securities technology vendors that think through not only today’s challenges but also tomorrow’s are best positioned as key partners for their bank and brokerage clients.
The US Office of Financial Research (OFR), created as part of Dodd-Frank and tasked with organizing and analyzing data on financial markets and systemic risk, has published “Reference Guide to U.S. Repo and Securities Lending Markets.” What, if anything, does this paper signify for market participants? Should we care? Our article demystifies both the report and an associated blog post, which itself is entitled “Demystifying U.S. Repo and Securities Lending Markets.”
A recent survey of asset managers in securities lending showed that executives were interested in CCPs but lacked the information necessary to create a cost/benefit analysis and build their business cases. Part of this business case relies on data from a functional CCP, but other parts require an understanding of the main components. This article provides key points and a methodology for creating this analysis.
DataLend presents its top 10 earnings equities for August 31, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
DataLend presents its top 10 earnings equities for August 24, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
There have been a handful of articles recently on ETFs, and in particular on the use of EFTs as collateral. Could ETFs become widely accepted as collateral in securities lending, repo and other collateralized transactions? The idea opens up interesting new avenues for ETF liquidity and utilization.
The future for liquid alternative mutual funds and UCITS funds looks bright, but structural problems in accessing leverage and service providers may indicate a problem with the sustainability of this business model.
DataLend presents its top 10 earnings equities for July 20, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
In the first edition of Securities Finance Monitor Magazine we tackled the question of where General Collateral (GC) lending was heading in the securities lending market. Using SunGard data, we found that through 2014 GC had remained pretty stable. We then asked asset managers what they thought in our 2015 survey. This suggests some possibilities for new directions over the next year.
DataLend presents its top 10 earnings equities for July 13, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
The eighth annual Finadium survey of asset managers looks at the balance between risk and reward in a changing securities lending market. At long last, the market is evolving due to regulations and market behavior; this is no longer a projected impact but one that is evident in daily activity. The question is not whether securities lending will survive – it will – but how much do asset managers want to be a part of the market, how aggressively are they willing to meet borrower requests for collateral expansion, and how much revenue is acceptable or appropriate for asset managers to seek from their lending programs.
In preparing an August research report on liquid alternatives and leverage patterns, we started to think about who gets the business when prime custody or enhanced custody maxes out? We expect that there are limits to how far prime custodians can go in a liquid alternatives market that could reach US$2 trillion AUM. What happens then?
There are more than $1.7 trillion in securities on loan in the global securities finance market. Check out our infographic to learn more about the industry.
The news these days is coming fast and furious, especially for mid-summer. We’ve missed a few things in our regular posts that we wanted to get back to. This edition covers some recent regulatory activities including formal proposals and informal commentary. Some of this makes sense while other parts make you wince. All together, regulatory reach in the service of no-risk markets continues apace.
Chinese government authorities have created a multi-tiered plan to support sharply falling stock prices, including providing liquidity to the China Securities Finance Corporation (CSF). This entity provides margin and securities loans to brokers. By offering more capital to CSF, China hopes to stimulate demand for margin loans. At this point, more froth is needed and CSF will play a role. This article looks at CSF, what it is and how it works.
DataLend presents its top 10 earnings equities for July 6, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
We are preparing our 2015 asset manager survey for publication and notice some interesting trends in fee splits with agent lenders. This article provides the data on asset managers and institutional investors for Finadium research subscribers. Fuller details will be available in the asset manager report coming in July.
DataLend presents its top 10 earnings equities for June 8, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
There is an old saying in Capital Markets: “revenue comes from trading but profits come from operations.” Securities lending is a business process that exemplifies this truism. Firms are making major changes in reaction to regulatory and market realities and have to maintain profitability at the same time. As part of this evolution, securities lending operations and technology are becoming part of the integrated enterprise-wide service offering of major financial services firms. Along the way, firms are struggling to balance the needs of operational efficiency, compliance and cost management.
DataLend presents its top 10 earnings equities for June 1, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
An article in the FT “US regulator gets tough on asset managers’ shadow banking” (May 24, 2015) by Chris Flood (sorry behind the pay wall) reminds us that regulators are still obsessed with connecting dots between shadow banking, securities financing, and asset managers.
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.
DataLend presents its top 10 earnings equities for May 25, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
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.
DataLend presents its top 10 earnings equities for May 18, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
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 4, 2015. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
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?