Securities Lending Experts Discuss 2013
Over 100 key industry figures recently gathered in London for the first J.P. Morgan European Investor Services Securities Lending Forum to discuss regulation and the opportunities and challenges for the year ahead.
Global Head of Securities Lending Product & Portfolio Analysis at J.P. Morgan, Paul Wilson, kicked off the event with his opening remarks before David Mackie, Head of Western Europe Economic Research, examined the global economic outlook. Mackie questioned whether improved unemployment rates could be a stimulus for the country and whether an increase in long-term inflation could boost spending and spur growth. Kevin McNulty, Chief Executive of the International Securities Lending Association (ISLA), described the ISLA's role and activities and the evolution of the securities lending marketplace. "I'm currently seeing agents like J.P. Morgan doing a lot to make sure their clients have access to enough information about securities lending and that they are kept up-to-date with the latest developments," McNulty said.
Two panel discussions took place over the course of the day, the first of which was a lively debate on the regulatory environment. Chaired by the Editor-in-Chief of Global Custodian magazine, Dominic Hobson, the session included live polling, with the audience providing insights into their opinions on short selling, central clearing counterparties (CCPs), transparency, mandatory haircuts and the Dodd-Frank Act.
When asked to vote, 68% of the audience believed that the use of CCPs for securities lending was not desirable. One panelist said, "This doesn't surprise me at all. The challenge of getting CCPs to work in such a heterogeneous market is huge."
The use of CCPs for Securities Lending is Desirable
Transparency was another topic that provoked much discussion, as 74% of the audience believed that better disclosure to investors would enhance the confidence of lenders in the stock loan market. "Profits will likely go down but volumes will go up," said Furio Pietribiasi, Managing Director of Mediolanum International Funds and Mediolanum Asset ¬Management. "Any increase in transparency will build trust, which in the longer term will help grow the market."
Increased transparency (i.e., disclosure to investors) will:
A surprise emerged when 36% of the audience believed mandatory haircuts to be desirable. David Rule, Director of International U.K. Banks, Financial Services Authority, made it clear that such haircuts are not aimed at the typical beneficial owners lending to a bank which is then lending to a bank.
Mandatory haircuts are desirable for securities lending transactions:
The final panel event of the day considered the opportunities and challenges of 2013. While the overall consensus was that the lack of demand is unlikely to change in the short-term, John Shellard, Global Co-Head Agent Lending Trading at J.P. Morgan, was relatively optimistic about the outlook for the year ahead. "If markets improve and stability continues, we should see more deal activity, and beneficial owners will likely add a bit more risk into their securities lending programs."