The nature of agency lending is changing along with financial markets in the post-Global Financial Crisis era. Agent lenders have become more responsive to their clients, as well as to the needs of their counterparties in the face of complex regulatory requirements. Some institutions view 2016 as an uncertain time for their agency programs, while others have doubled their commitments to the business. At BNP Paribas, we see a great future for our clients and our agency lending program, and we are paying careful attention to the exceptional markets and regulatory context to maintain a successful outcome.
The impact of regulations on the securities lending industry has been frequent and profound, but the market remains vibrant. Volumes decreased in 2015 for the first time since the Global Financial Crisis although they remain near post-2008 highs. Growth in two key areas demonstrate the market’s adaptability: transactions backed by non-cash collateral have increased steadily since 2008 and direct lending is slowly growing between borrowers and lenders without an intermediary bank. With more regulations coming online in the near future, including the Financial Stability Board’s new margin rules, firms are well-placed to scrutinize available strategies in a bid to optimize returns.
As the world turned to Hong Kong to take of view on a slowing China, 2015 proved to be a banner year for Asia’s securities lending market.
EquiLend’s NGT (Next Generation Trading) platform is emerging as an important new trading platform in the securities finance markets. With NGT at the early stages of adoption, Finadium conducted interviews with EquiLend and initial users to understand the value of the platform and determine what benefits may emerge as the network grows.
DataLend presents its top 10 earnings equities for January 11, 2016. This list is built on DataLend¹s universe of more than 42,000 securities on loan.
We thank the Financial Times for their article, “Securities lending unsettles regulators,” by Chris Flood. The article was published on Jan 10 2016 and highlights the importance of securities lending as a means of improving market liquidity. We were accurately quoted on our opinions but our data were misquoted in the original print and online editions (but have subsequently been corrected online).
What if there was a centrally cleared facility through a US Central Securities Depository (CSD) that would automatically allow a broker with excess availability to lend securities to another broker with a need for those securities? What if that facility was fully automated and ensured each party was wholly collateralized every business day, and which substantially eliminated problems like Rule 204 fails?
Eurex’s Lending CCP remains the market’s leading option for bringing the sell-side and buy-side together for cleared securities lending. While experts and participants believe widespread adoption is inevitable and are hanging in there, it can be difficult to wait for the right elements to create momentum and drive usage forward.
Fully Paid Lending (FPL) programs touch nearly every major trading, operational, compliance and administrative business process at a broker. Putting an FPL program in place does as much as any other project to expose just how “enterprise ready” (or not) a broker’s securities lending systems and operational model really are.
A letter by Guido Stroemer in the FT responding to the recent article on securities lending:
Big Data has taken over retailers, governments and social media, and it is now coming to securities finance. Securities finance has always had to contend with a substantial amount of data, but Big Data presents a new and emerging complication. The change ahead of us is how much more data is created, how much further data needs to travel, and what else needs to done with it. This is where Big Data really earns its name.
This Finadium report evaluates regulatory costs in order to determine whether internal balance sheet treatment will push the market towards OTC derivatives in place of Securities Finance Transactions (SFTs, including securities loans and repo). We already observe this happening in securities lending and ask whether evolving regulations will speed the market in this direction.
Following the publication of the FT’s article on November 30, “Regulators’ boost for securities lending has risky implications,” and our reply, “The FT suggests that collateral transformations amount to regulatory arbitrage,” readers provided some very constructive comments. One thing they asked about was a part of the analysis that we hadn’t fully wrapped up: what happens to LCR calculations in a collateral transformation?
In a strongly worded article, the Financial Times yesterday came out swinging against collateral transformations. This was a surprise attack against a practice that certainly carries some risk, but is far from the backhanded and devious business that the author implies. What’s going on here?
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.