A fresh look at lending

A fresh look at lending

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Market experts met in London in April to discuss the current trends shaping the securities lending market.


  • Brian Willmott, Vendor Management and Stock Lending Oversight Manager, RPMI Railpen
  • Yannick Lucas, Independent Consultant
  • Stephen Kiely, EMEA Head of Sales & Relationship Management, Securities Finance, BNY Mellon Markets
  • Dan Rudd, Executive Director, Agency Securities Lending. J.P. Morgan
  • DataLend
  • Hadley Pritchard, Executive Director, Securities Finance, Global Markets, ABN AMRO
  • Bill Foley, Founder, SecFinHub
  • Andrew Neil – Global Investor (chair)

Chair: Where did the bulk of revenues come from in 2018 and what have market participants experienced so far in 2019?

DataLend: 2018 was a fantastic year from a revenue perspective. Securities lending gross revenue was up 8% over the previous year to around $10 billion, the best since DataLend began tracking the market. Average on-loan global balances totalled $2.4 trillion, split between $1.3 trillion fixed income and $1.1 trillion equity, while the supply of inventory was around $19.5 trillion on average for the year.

Key drivers of revenue were equities in EMEA and Asia, up 21% and 30% respectively. Revenue in the US was slightly down in absolute terms by approximately 6%, but the sheer volume on loan in the US meant the market still contributed half of the global revenue haul. Fixed income revenue in EMEA was up 14% with average on-loan balances of around $400 billion as demand for HQLA continued.

Close to two-thirds (65%) of the global average on-loan balances are on a non-cash collateral basis. That’s probably not a surprise in EMEA and Asia; however, we are also seeing more focus on non-cash in the US Finally, for 2018, out of the $19.5 trillion in assets 42% were held by mutual funds and UCITS, plus 25% by pension plans and 15% sovereign wealth funds.

We witnessed a slower start to 2019 in first two months versus the same period in 2018, largely due to average loan values and average fees falling in sovereign debt in the Americas and EMEA. This could be the result of year-end pressures to reduce balance sheets or the dollar-yen basis trade being closed out or being re-rated down into the New Year. Despite activity declining in the first couple of months, the market stabilized in March and returned to the same average on-loan balance seen at the end of 2018. Additionally, we’ve seen corporate bonds on-loan balances up about $10 billion in the first three months of the year alone.

Asian equities are also leading the charge with increases across the number of securities on loan, the value and the actual revenue generated. Japan alone has seen an on-loan value increase of 14.5% to $134 million and a whopping 34% increase in total equities out on loan in this first couple of months.

Among small and nano caps, we’ve seen the number of securities with average fees of greater than 10,000 basis points double in Q1. The previous year it was 28, while at the start of this year there were 57 unique securities out on loan trading in this range, so that’s an extremely hot sector.

Chair: Brian, how has RPMI Railpen’s lending programme evolved in recent times?

Brian Willmott: In 2018, we reappointed BNY Mellon as custodian to our portfolios. As part of these negotiations a full review was undertaken of our discretionary securities lending mandate also operated by BNY Mellon. We had an existing programme that had been in place since 2005 but had not been reviewed for a number of years and revenues had become static. Given the significant changes seen in the securities lending market over recent times, we recognised an opportunity to expand the programme. We wanted to align the programme with how the industry has evolved, in a way that mitigated risk and enhanced returns. Consideration was given to the risk profile of the programme, current trends driving revenue returns, operational controls, programme governance as well as the financial strength of BNY Mellon. We now have a fully indemnified programme which meets our original objectives.

Brian Willmott, RPMI Railpen.

Chair: Yannick, can you describe your involvement in a recent securities lending project?

Yannick Lucas: I was brought in by a large asset manager (over £500 billion of AUM) to map out the road for it to be able to lend its assets again. We started by doing a feasibility study around the potential revenue and extra alpha that could be generated for the funds, as well as comparing an outsourced model to building an in house trading desk. Both the CIO who was the driving force behind the initiative and the CEO shared our view that given the scale of the undertaking and the vision of what the desk could look like, once it was lending its fixed income assets as well as its equities, it made sense to do an internal build. There was a clear path to start with HQLA assets - strong demand for those - and build out the fixed income platform, followed by equities before looking at more complex collateral optimisation as well as other treasury functionalities. We looked at BlackRock as a case study, it’s no secret they made close to £600 million in 2017 from their securities finance business.

The global head of fixed income really wanted this to be done. I can still remember his words: “In a low yield environment and ever increasing pressure on management fees, every basis point matters!”. I also believe it’s part of the fiduciary duty of asset managers to try and generate as much alpha for their funds. The world has changed since the last big financial crisis in 2008, bank balance sheets have become much stronger, and as long as you are rigor-ous with your counter-party selection there is an extremely low probability of any losses occurring, especially with the over collateralised nature of the lending. All in all, this painted a fairly good picture from a risk perspective.

The project involved looking at all the operational requirements, IT infrastructure, risk management, legal contracts, choosing which system to use, and regulatory and compliance issues. We made a lot of friends on the journey with the likes of Pirum who were instrumental when dealing with the operational aspects, JP Morgan were simply outstanding and very much engaged throughout the whole project, on the collateral management side BNY Mellon helped us get comfortable with all the processes, and there are many others who helped make this such an interesting and exciting venture. The programme went live in December with the first set of funds, all UCITS with institutional funds set to follow. When most projects seem to involve a degree of cost cutting or headcount reduction, building out a new revenue stream and helping portfolio managers maximise their returns really was inspiring from start to finish.

Dan Rudd: It’s an unusual scenario for a large investment house to suddenly start a securities lending programme off their own back. What we’ve seen is the reverse trend, whereby firms continue to outsource activity and have greater dialogue with their providers. The cost of keeping this business going is increasing all the time and amount invested in technology is going up. Securities lending does generate a lot of revenue and agents don’t take too much - the majority ends up back with the beneficial owners, with protections included. Fundamentally everyone has choices, that creates opportunities, competition. It’s important funds review their approach to securities lending. Brian’s work at RPMI Railpen is a great example of bringing someone in-house who knows about the industry, partnering with an agent, then adapting and developing a programme to acceptable risk parameters. The market is always moving and firms need to change. That approach will reap rewards in terms of revenue.

Dan Rudd, JP Morgan

Stephen Kiely: Lending in-house makes sense for some large asset managers. However, I’m seeing more beneficial owners look at the regulatory requirements and ongoing management of their securities lending programme and deciding to outsource. At the same time, some smaller funds are weighing up whether to remain active in this market. The regulatory requirements of SFTR, for example, and the responsibility of getting it wrong weighs heavily on people. Most providers, including BNY Mellon, will still be here post SFTR but there is evidence the market is being driven into the hands of the bigger players and some of the smaller participants are coming out. Ultimately that’s not good for competition and for the market in general, even though large players may be a net winner in the short-term.

Bill Foley: I think we are beginning to see the buy-side taking a more forward looking view when considering their securities lending options as the market evolution gathers pace and technology changes the landscape. This may result in them opting for different and/or multiple routes to market as these options open up and will for many reawaken and inform the insourcing vs outsourcing debate.

If we consider the recent trends in securities lending, the decision Yannick describes perhaps seems quite an unusual one. However, I sense that they have taken a forward-looking view of their securities lending options; the current market offerings, and their own abilities and requirements and very much taken a “blank sheet of paper” approach. Their conclusion is the right one for them. However, it’s wrong to generalise when talking about beneficial owners and their choice of route to market because each is unique. There is of course huge variation in size and type of assets available to lend as well as differing regulatory considerations. Additionally, there will be individual risk appetites and revenue opportunities and of course variation in their ambitions: what they are looking to achieve from their programme.

Beneficial owners are ever more analytical and therefore more informed when considering their options and are less likely now to run through an RFP process every X number of years just because that’s what they are required to do. Lending is higher profile; the available options are increasing and the selection process is more demanding. As a result, agent lenders are having to work harder to win and retain business. For them it’s more difficult and competitive than it used to be, and they are really being held to account in terms of performance and service. This means that they in turn are having to become more selective in deciding what constitutes an attractive client. Less attractive lending clients – where the revenue is marginal or perhaps where the operational impact may be burdensome for the agent – will likely see this reflected in the pricing proposal.

Hadley Pritchard: As Yannick’s been proving, it is still possible for an asset manager/owner to run their own desk. Yannick’s work and the company’s decision is good because if nothing else it disturbs the water. Clearly the technology, systems and data are all available which gives added comfort to the fund managers about what’s happening. That said, there is an element of being too small to run securities lending by yourself. A benefit is to be able to reach out to a firm and say, “What is it that you’re looking for?” There is value without having to go through an agent lender. For the purposes of speed, agility let’s say, if firms are out there then bespoke trades could be done that are not just about revenue, because the business isn’t just revenue-driven anymore, it’s about metrics and behaviours.

Yannick Lucas: I am a fan of both routes. Agency lending brings great value to many, but in the case of the asset manager I was working for it made sense to go in another direction. Over the next year or two other firms will be re-examining their lending activities in order to reduce costs. I already know of a large UK asset manager who is simply looking at whether they should have an internal trading desk. In my opinion it’s a matter of scale but even undergoing such exercises can only lead to a reduction in fees from existing agent lenders and custodians who are obviously keen to retain the business. So, taking a closer look is a win/win for any asset manager.

Brian Willmott: We have no current plans to internalise our securities lending programme. Given the programme’s size it is unlikely this would be commercially viable. Significant costs for set-up, ongoing administration and investment in systems are likely to far outweigh the benefits. And this is before we even consider the current regulatory change headwinds.

Bill Foley: With technology an increasingly important facilitator, we may see increasing numbers of beneficial owners opting for multiple routes to market – in order to optimise their lending programme if this suits their portfolio and profile. Technologically, the marketplace looks set to evolve over the next three to five years in a way we haven’t seen before. Technology adds further options to beneficial owners when they’re considering how they participate in lending and other securities finance activities. We’re moving away from the days of a siloed approach where the lending oversight team, treasury, collateral and repo desk didn’t take a joined-up view of asset and collateral deployment. Firms are looking at their inventory and taking a much broader view of what the most efficient, cost saving or revenue generating use is.

Those that are already lending inhouse will be looking at SFTR, CSDR etc and considering the cost of running and maintaining a programme versus outsourcing it. And of course, should an investment house such decide further down the line to get some heavy lifting done by outsourcing part of their activity to someone else, they can do so. It’s all about beneficial owners balancing out their programme requirements and restrictions and delivering the best result within the selected parameters. For example, if utilisation is important to you and you want to capture as much revenue as possible from your GC assets, you may consider that you are best served by outsourcing to an agent who will undertake this high-volume activity in exchange for appropriate fees. The decision is all about the value that you get from your agent, and to date, that value has been largely unquestionable because securities finance is a clunky old business and there’s lots of heavy lifting to be done. However, from a post-trade perspective some of that heavy lifting might be lighter in a few years thanks to improved technology.

Chair: Which types of funds are keen to engage and who remains on the side-lines?

Stephen Kiely: Passive managers looking for alpha and the insurance companies who have P&L targets to meet - these are the types of participants we’ve seen coming into the market. The pension funds of this world are here to look after their pensioners and do so conservatively, but there is a realisation that you need to make long assets sweat, otherwise you’re leaving money on the table. To say, ‘This is our house view for the next ten years, fifteen years,’ is a dogmatic view, when securities lending should be constantly reviewed because the market changes far more frequently than it used to. Clients are more aware of the data, its uses and who is providing the data. Beneficial owner education has improved markedly.

Yannick Lucas: One of the determining factors of choosing the in-house model was to allow for their portfolio managers to be as nimble and reactive as possible to market conditions. As an example, on one occasion we received an email from a borrower who knew we had a specific asset and was particularly keen to borrow it in return for a considerable profit. At the time, the asset manager wasn’t set up to lend, and the thought process was, ‘Would we have received that email if we had used an agent lender? How reactive could we have been?’ The view was that the trading desk would be able to react very quickly to such an enquiry and therefore maybe be able to capitalise on that information.

Yannick Lucas, Independent Consultant 

Stephen Kiely: It’s not just about the lending, certainly there’s been an increase in people saying, ‘Lending may be my main driver but it’s not everything, I’m also looking for margin financing, I’m also looking for you to help me when I need liquidity and when I’ve got excess liquidity.’ If you’re an agent lender who can provide these services, then you’ll be okay, because this is going to be a trend going forward. If agent lenders don’t adapt, it could potentially drive the bigger players directly into the arms of the borrower community, especially the big investment banks or prime brokers.

Yannick Lucas: Some market participants are still adamant they don’t want to get involved in securities lending because they don’t want to help hedge funds short the market. And whilst I understand the principle behind this, the market is so mature nowadays that the shorts will still happen, however, by not participating in lending programs portfolio managers may not benefit from such knowledge and position themselves accordingly. Isn’t that what they get paid to do? Bottom line is that in such a competitive environment every bit of information is key.

Chair: How are investors using data in the securities lending market?

DataLend: We’re seeing funds that are on the sidelines and ones already actively lending looking at “what if” scenarios. For example, data is being used to forecast the potential additional returns from tweaking non-cash collateral schedules. DataLend Portfolio was released in 2016 to provide beneficial owners direct insight into their agent lender’s (or lenders’) performance. In conjunction with beneficial owners and agent lenders, we formed standardized peer groups to evaluate performance on a like-for-like basis. Data is also being consumed in different ways. Historically, much of the information would have been sent in data files and produced in the odd report; now, our API allows beneficial owners to take our data into their in-house systems and run their own algorithms to see what potential returns can be generated.

A lot of our focus over the last two years has been working with beneficial owners to help them understand the risks and rewards in the securities lending market. We see funds that will only lend out intrinsically and funds that lend out as much as they can to generate revenue. We also see a strive for automation: Gone are the days where a locate list would come in and it was simply the quickest finger first to get the business. We definitely see data educating and fuelling the changes in the way that people are trading, that’s for sure. In addition, the oversight on the programs has grown. Oversight is daily; it’s almost getting to real time as beneficial owners want to know where their securities are, what they’re out at and who they’re with every day.

Dan Rudd: The way in which data is used in this market has moved onto the next level. Portfolio managers are trading funds on a day-by-day basis, they want data to know what’s being shorted in the market and they’re using data to influence their core trading activity.

Chair: Do beneficial owners view pledge collateral structures as a useful alternative transaction type?

Brian Willmott: We are in discussions with our service provider regarding pledge. We have made no firm commitment either way, however we will not be an early adopter in implementing pledge. If it is evident that our revenues are being impacted negatively by not participating in pledge we will review this with our supplier and trustee. We will just wait and see what the impact is and react accordingly.

Dan Rudd: Clients who are early adopters of pledge are seeing better rates and better utilisation. In a rising market borrowers have taken balances off so there are less shorts in the market, therefore there’s been less focus on capital resulting in a temporary drop in demand for pledge. We’ll see that turn around. The securities lending market is fickle, it goes one way one day, it’ll go the other way the next. If you haven’t got pledge approved as another alternative you’re then going to lose out. It’s all about flexibility to maintain and grow stable balances.

Stephen Kiely: Pledge is having an impact on our programme already. We released our pledge documentation last year, which is our own interpretation separate from ISLA’s. We have a critical mass of clients signed up, representing over half of our supply. Within two weeks of going live with pledge, we had significantly increased our incremental balances- not converting transfer into pledge, but increasing utilisation. That will not continue forever because pledge will be the new normal at some stage, but at the moment, if you can get out in front there are substantial uplifts to be made both in terms of utilisation and spread. Hopefully we’ll get to a stage where funds who are prohibited from taking pledge collateral, such as UCITS, lobby their regulator to try and get this approved as part and parcel of their activity.

Stephen Kiely, BNY Mellon Markets

Yannick Lucas: Pledge and SFTR are the two big talking points this year. There will be a clear benefit for both borrowers and lenders to change their legal agreements and include pledge structures going forward. The demand is there form the big banks as this helps them address liquidity ratios, so why should lenders not capitalise on this as well. Matthew McDermott at Goldman Sachs has been a pioneer in this space along with JP Morgan and ISLA. At some point pledge will become the new normal, but for a lot of people there is still a lot of work that needs to be done by their legal teams to work on new contracts.

Stephen Kiely: Exclusives have gone out of fashion over the last few years. Hadley, given the pressures on the market, if ABN AMRO were to find a client who was big enough, RWA friendly and accepts pledge collateral, do you think you’d be more inclined to get involved in some sort of exclusive arrangement with them?

Hadley Pritchard: We used to have large exclusives. My feeling is that on the back of something like CSDR, exclusives will become more important for providing your client with added protection. There could also be value in looking at exclusives, particularly non-main index.

Chair: Is Europe’s Central Securities Depositories Regulation (CSDR) a negative for the stock loan business?

Bill Foley: Most of the conversations around CSDR suggest this is going to be bad for the lending community. This is because of the view that you may have lent or repo’d a security which you subsequently sell, and you are unable to get the security back. Consequently, your sale fails, and you may be looking at a buy-in or possibly a fine. This does not fall in line with claims that securities lending for example causes “minimal impact on your day to day activity” and if your lending activity is marginal, you may decide it’s not worth the hassle. Anyone participating in lending should consider sensible buffers – how much of a security you hold back from lending. Buffer management is a key part of what an agent lender does within their programme, particularly of course for less liquid or less widely held securities. An agent needs to have both depth and breadth of supply, in order to deal with client sales. If you only have one client holding a security, even if it’s a large position, caution needs to be exercised because when they sell it, you’re out, it’s all gone and under CSDR you may have a problem. This is where buffers are critical.

Dan Rudd: CSDR should lead to more settlement efficiency. Beneficial owners, providing they gets sale instructions to their agent on time, will face no charges. The cost, if there’s a buy-in/fail cost, is either the agent’s responsibility or the borrower’s responsibility. However, the reality is that even if there isn’t a penalty for a client in terms of failing their trade, there’s a reputational risk. That’s something JP Morgantakes very seriously as an agent lender. In my view CSDR will be a short-term
headache for everyone, but it should create efficiencies and hopefully, as a result, more borrowing demand.

Chair: What action are beneficial owners taking regarding Securities Financing Transactions Regulation (SFTR) reporting? Have we entered a test phase?

DataLend: Yes, most definitely. We have partnered with Trax on an SFTR solution. The feedback we are getting is that most agent lenders will offer some reporting, that’s for sure. Potentially, we could see more firms direct trades to platforms like NGT. If you trade on NGT you get SFTR data fields automatically, including the unique transaction identifier (UTI), so more trades may go down this route. As far as EquiLend goes, we have a working SFTR product that beneficial owners can drop trades into at the moment and see data through the dashboard. The service is in place and is currently being tested by clients well in advance of the SFTR go-live date in 2020.

Yannick Lucas: In a world often described as the last bastion of the wild west, SFTR is seen as a very welcome source of transparency. And that can only be a good thing. Yes it may be overly cumbersome in terms of the number of fields that need to be reported, and yes there are increased costs for all associated to complying with this new regulatory requirement. At the time of the project at the asset manager, we had met with a number of providers for an SFTR solution, and the costs had not yet been mapped out. No doubt for some smaller players the increase in cost may force them to rethink their strategies for others it will simply have to be an increased cost associated to doing their day to day business.

Stephen Kiely: I haven’t seen an RFP, whether consultant-led or direct from a new client, for 9-12 months that hasn’t had an SFTR question. Mostly clients just want to know that someone’s going to take care of SFTR reporting whether that’s an assisted reporting type scenario or whether we’re going to put the reporting together for them. We’re going to offer both to our clients.

Brian Willmott: Our agent lender has the required data, so we are looking to our agent lender to source a solution. We are having ongoing discussions with our agent lender regarding all SFTR requirements and are aware they are developing their solution in conjunction with a leading market vendor. We are waiting to see the full details of their service offering, however recognise that it is likely that they will, at some point, engage with us regarding the associated cost implications of SFTR reporting.

Stephen Kiely: When you lend through a large agent lender who is a big custodian, you’re used to them reporting for you. They might expect or assume the custodian is handling SFTR. That may be the case but funds can’t outsource the responsibility of SFTR in the same way you can’t completely outsource risk management. Beneficial owners have to be comfortable with their providers’ capabilities. They have all the data but they’re not necessarily going to have it in the way that the regulator or a repository wants to receive it.

Bill Foley: Is SFTR a good thing? There’s no doubt that we’ll be in a better place down the line. For those of us who in our introductions alluded to just how long we’ve been in this market, SFTR shouldn’t have been too much of a shock when announced. This industry has been revelling in its opacity for a long time. SFTR - despite all the bumps in the road, the workload, the cost and potential for some to exit the market - must be a good thing for the industry. However, I would agree that it’s a little more complicated than it needs to be. This is perhaps understandable considering the ambition is to regulate a market of this scale and complexity for the first time. What I think will be interesting is what happens post April 2020 Many feel that the level of reporting will likely be reduced at some point post implementation and that may be the case. What will the regulatory response be once they have this mountain of SFTR data? We may have to wait and see while they digest it. As I mentioned, I do think SFTR is a good thing for the industry, and it’s simply bringing securities finance in line with others. I would caution however, that for regulators, having a huge amount of information doesn’t mean they’ve necessarily got the right detail or can interpret that information fully. If after two or three years of looking at the data regulators aren’t satisfied, the answer is unlikely to be less reporting or less data.

Bill Foley, SecFinHub

Dan Rudd: We’ve yet to see the full cost of SFTR. The reality is that beneficial owners are on the hook, they can’t pass on the accountability, but agent lenders can do all the heavy lifting. This is why we’ve all partnered with various firms to make an easy solution for clients. I would suggest that the appetite across the beneficial owners to get heavily involved will be very limited, although there are going to be some who will want to.

Hadley Pritchard: Much depends on one’s client base. My concern is the rules become too onerous to implement financially for small and midcap participants on the borrowers side to take part in this business anymore. They either need somebody who can ‘sponsor’ them in a way, through for example delegated reporting, becoming a ‘regulatory parent’, or they could drop out. According to ISLA, 80-90% of trades settle is this market. That’s not such a bad ratio. My opinion is that CSDR rules are designed, in part, to improve and boost use of Target2Securities. With SFTR, it’s the first time probably any industry has really been through this amount of detail in what it does, but ultimately we fully support transparency because it can only add confidence.

Chair: Is voting and ESG more broadly becoming more important to securities lending desks?

Dan Rudd: It’s a mixed bag. We have certain clients who absolutely are adamant they want to vote on everything. You’re never going to really change that. What I have seen, noticeably in fact more recently, is clients becoming very mindful about their governance. It is our responsibility as agent lenders to help them get their assets back. If they want them back, we’ll recall them, it’s not an issue whatsoever that’s just the way we operate. But more are asking ‘Is there a meaningful reason for getting the securities back for voting at this point in time?’ That’s a newer trend. It used to be, ‘We absolutely want it back all the time whether a voter or not,’ now they’re really starting to have this conversation in terms of, ‘Well actually, if I recall I’m losing out on quite a bit of revenue, and actually am I doing the right thing for my underlying customers and investors by recalling the stock?’ That’s a good step forward. Technology is out there and can be used in terms of ranking critical votes that are coming up. It’s about using that technology to start recalling securities on an automated basis as required.

Hadley Pritchard: A developing challenge for the next few years is the push towards sustainability/ESG. ABN AMRO is very keen on its sustainable banking programme. There’s a lot to be worked on in this space, and securities finance is one of those areas that’s right in the middle of the whole developing discussion.

Chair: What is your outlook for the business?

Bill Foley: Although it doesn’t feel like it sometimes, we are coming out of a post-crisis regulatory implementation era. During this period, for many participants there have not been theresources, either physical or financial, to cope with this heightened level of compliance and still focus on product development or technological advances – meeting the next regulatory deadline took precedence. For me, technology is going to drive and be the focus of the next important phase. Apart from all the good practices that we have been able to focus on like automation, STP, efficiency and cost reduction, I believe that we will see the actual landscape start to change and the nature of both participants and participation will alter. We’ll see some of the traditional value chain participants evolving to meet that change, some will come under pressure and there will be new routes to market that will become available. Digitisation and tokenisation are already starting to find applications within securities finance, and I believe this phase will be a huge agent for change.

DataLend: There’s more demand across the whole financial market for our data, especially amongst the beneficial owner audience, whether it’s from asset managers, sovereign wealth funds or insurance companies. I expect that to continue. It’s well documented that EquiLend has the leading products in the market from trading to post trade and data analytics. The last point I’d like to mention is that with all the data available, AI and machine learning will provide greater efficiencies across trading, post trade and analytics. While the business will remain relationship focused, it will be driven by data and automation.

Stephen Kiely: It’s been a pretty uneventful Q1, the market is relatively flat and there doesn’t seem to be much out-performance but there are no shocks either from a revenue perspective. All things being equal, the demand for HQLA has softened, there’s been spread compression and people are not earning the revenue they were last year. This quarter, probably our best stock in Europe has been Wirecard in Germany, and it is no coincidence it’s the one with the short selling ban. Southern Europe Financials remain active. Any stocks associated with the motor industry tend to earn significant revenue from time to time. Outlooks for future performance have to be caveated because we’re currently in a period of increased geopolitical uncertainty. Most hedge funds have de-levered and are waiting to see what will happen. Later this year we could be in a no-deal Brexit scenario with a USChina trade war at full throttle and then things could look very different.

Dan Rudd: Those that invest in this business will reap the rewards, those that use the data in the most effective, efficient manner and are easiest to deal with are always going to do well. The traditional form of securities lending is always going to be there, but things are changing. Alternative financing solutions are emerging. Being able to work through all scenarios and provide the infrastructure - in other words be a one-stop-shop - will be the way forward really to enhance this business.

Hadley Pritchard: The business changes all the time, which is why it makes for an interesting place to work. Daily or monthly you come in and there’s something new, whether that be a new start-up lending desk or changes around collateral, you’re always learning. I don’t think securities finance desks are just channelled into borrowing names by market, for example, everybody’s responsible for balance sheet, everybody understands what RWA means to their business and they understand so much more than just borrowing and lending. So, it’s a good place to be, and with all the changes – CSDR, SFTR – these current challenges will create further insight in to what the client needs to stay relevant and lucrative so that they continue to think this is a good space to be in.

Hadley Pritchard, ABN AMRO

Brian Willmott: Our mission is to pay members pensions securely, affordably and sustainably. So, how does securities lending fit into that mission statement? Securely - we need to be aware of the risks and we have to manage and oversee those risks effectively. Affordably – do the levels of revenue generated outweigh the costs of appropriate governance and the associated risks of securities lending? Currently we view this favourably, but we have to be mindful of changes. We have to continually monitor our programme parameters to ensure they are aligned to our business objectives and the evolution of the securities lending market. Finally sustainably – we invest to generate strong returns over the long term. We therefore have to consider the long-term interests of our stakeholders. Our securities lending programme could generate significant returns compounded over the long-term which in turn can fund many members pensions


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