Asset managers on the future of General Collateral lending (Premium Content)

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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.

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Finadium survey: asset managers on securities lending and collateral management

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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.

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Who gets the business when prime custody maxes out? (Premium Content)

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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?

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DataLend Infographic

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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.

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Monday news roundup on regulatory reach and no-risk markets (Premium Content)

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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.

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China Securities Finance in the middle of Beijing’s plan to prop up market (Premium Content)

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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.

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New data on securities lending fee splits (Premium Content)

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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.

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Finadium: A New Look at Securities Lending Operations and Technology

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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.

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Finadium: Prime Brokerage: Towards a New Target Operating Model for Financing

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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.

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Onboarding and Integration with the Lending CCP

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.
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Strategies for Securities Finance Businesses

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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.

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BlackRock releases white paper on securities lending facts to counter regulatory risk concerns

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.

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Who will close the gap between short-term securities loans and the LCR? (Premium Content)

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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?

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Finadium: The Securities Lending Industry in 2015

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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.

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Finadium: Trade Repositories for Securities Lending and Repo

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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.

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Will credit counterparty limit rules help third party agent lenders? (Premium Content)

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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:

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Securities Lending: The Year That Was and What’s to Come for 2015

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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.

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Finadium: What the Buy-side Should Know About Netting

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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.

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Where can new banks come from? Today’s Shadow Banks

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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.

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Finadium: Institutional Investors on Securities Finance

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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.

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Part I: What’s to come for Chinese Securities Finance in 2015 (Premium Content)

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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.

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Finadium: Perspectives on Direct Borrowing and Lending

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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.

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Getting real in 2015: why use a securities lending CCP?

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.
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