Message from Colin McKechnie

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Message From Colin McKechnie

Colin McKechnie ,
Global Head,
Financing & Markets Products

Q3 remained a challenging environment for the securities lending industry. During the quarter, concerns grew around the possibility of a double dip recession, stubbornly high unemployment, continued weak housing and uncertainty about peripheral European sovereign debt and the implications of austerity measures in certain European countries. However, September saw market sentiment improve and most global markets rally to levels not seen since prior to Lehman’s default as investors anticipated a second round of quantitative easing, more favorable economic data from Germany and better than expected Basel III rules. Overall, securities lending revenue generation was very mixed.

Many of the themes we have discussed previously continued to prevail and resonate. On the fixed income side, the abundance of supply and liquidity in the market, arising from government programs and stimulus policy, as well as record issuance, continued to subdue borrowing demand and keep spreads low. Equities fared a little better, but lackluster hedge fund activity and low levels of

specials arising from a lack of corporate activity and IPOs contributed to consistently low volumes. More encouraging was the increase in demand from dealers for high-quality collateral as they began to implement new measures as a result of government liquidity policies and Basel III. During the quarter, clients continued to relax parameters and guidelines in an effort to capture additional revenue opportunities. Essentially, for clients willing to extend the duration of loans, add other types of collateral such as equity repo, and/or increase the duration of their cash re-investment activity, the rewards can, and have proven to be very positive.

As you will read in the newsletter, global regulatory reforms continued to capture great attention in the markets. The impact of liquidity requirements, the Dodd/Frank bill, EU reform on short selling and derivatives, AIFM, Basel III, to name a few, will not be known for some time. However, as these reforms are understood better, sentiment should improve as the level of uncertainty subsides.

At J.P. Morgan, we have remained committed to evaluating and understanding the implications of these reforms and providing ongoing information and transparency into all things that impact your securities lending program. Some of the many resources available to you include:
- Quarterly Webinars featuring Senior Executives across a variety of our global lines of business, including Securities Lending, Cash & Collateral Management, Transition Management, F/X and Global Custody, to name a few;
- Our quarterly Securities Lending newsletter;
- Regular performance and business reviews with your dedicated Securities Lending Relationship Manager;
- A wide range of lending reports and monitoring tools, including our fourth-generation release of J.P. Morgan’s Dashboard

Please contact your Relationship Manager if would like more information on these or any other programs or resources that can help you in managing your securities lending program.

We look forward to continuing to provide you with industry leading, end-to-end solutions that are customized to your program’s risk profile. Thank you for your continued confidence and trust in J.P. Morgan.

To view the next article, Regulatory Corner & J.P. Morgan in the News, please click here.

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