BNY Mellon: Equipped to weather volatility storms 

Steve Kiely, Head of the BNY Mellon Securities Finance Client Relationship Management and Business Development Teams in EMEA, shares his thoughts with Global Investor/ISF on recent volatility in the securities lending market.

This article is part of the 2023 Spring Magazine, which can be accessed here.  

What measures did your organisation take to manage risk during the recent market volatility in the Securities Lending market, and what was the outcome of those measures? 

We always try to put ourselves in the place of our clients, understanding their concerns and giving them confidence in the safety of their programme. Collateral is often the focus in times of market volatility; therefore, we directed clients to their collateral adequacy reports and emphasised the daily collateral stress tests that we perform. We regularly re-evaluate the risks and act in the interests of clients and the overall lending programme, and from a relationship perspective, we were proactive in increasing client communication, which reassured our clients in the market conditions.

The programme did not experience a loss of liquidity for clients as the recall process was very robust. Clients did not restrict highly liquid assets, e.g., government bonds, from lending programmes, to have access to liquidity if required, and borrowers experienced stability of supply as a result. The experience of the UK’s September 2022 Mini-Budget volatility helped all parties to have faith in securities lending programmes.

In terms of outcome, the main period of volatility passed without any serious incident and with the reputation of the programme enhanced.

How has the recent market volatility impacted your organisation’s Securities Lending business?

The effect has been minimal, in that we haven’t seen significant changes to clients’ programme parameters, and simultaneously clients have benefited from the increased revenue that acts as a hedge against volatility. Increased volatility and/ or market events always bring us closer to our clients due to the raised level of client contact, and we believe that results in deeper levels of trust, through pro-active, two way communication.

How have your clients responded to the recent market volatility in the Securities Lending market, and what actions have you taken to reassure them?

Success in this environment depends on preparation beforehand. Market trends come and go with such frequency, that we work to ensure that clients and their programmes are as equipped as they can be to weather unusual conditions and take advantage of opportunities as they present themselves. As already mentioned, volatility often leads to questions from clients and opens opportunities for dialogue and greater education. As a result, clients often gain a greater understanding of the securities lending market when it goes through periods of volatility.

We have seen increased interest from clients in using their securities lending programme, not just as a tool for generating incremental revenue, but as a tool for accessing financing and liquidity management. When volatility and market events squeezed liquidity, clients looked to their lending programmes for answers, and we have developed the apparatus to provide those answers. We can offer solutions to raise cash and deploycash, as required through our Securities Finance product suite.

Looking ahead, what steps is your organisation taking to prepare for potential future market volatility in the Securities Lending market, and what lessons have been learned from the recent experience?

To continue a theme, we are expanding our efforts to enhance and align clients’ programmes when markets are calm, in order to lean on this progress during periods of increased volatility. For example, our clients are well educated in how we manage risk and we will increase this to ensure even higher levels of comfort. BNY Mellon has a set of solutions to not only protect and enhance securities lending revenue streams, but to also manage the programme to our clients’ benefit.

For the most part, we have learned two things: clients trust us to manage risk pursuant to their direction; and they are looking for Securities Lending to provide liquidity management tools – not just revenue generation. This changing view of Securities Lending is an industry trend, and it is the responsibility of industry leaders to facilitate these solutions as markets move with greater speed and clients become more sophisticated.