Securities lending providers will come under more pressure to add value to their beneficial owners that lend, market participants discussed at the Markit Securities Finance Forum in London on March 19.

One agent lender warned that “if you can’t add value, you’re dead”, while a beneficial owner said "there will be enormous focus on who adds value in the chain”.

It’s “unhealthy” to sign up hundreds of new clients to lending programmes if there is small demand for borrowing securities, said the agent lender.

Indeed, the amount of securities available to lend far outstrips demand for borrowing them.

He said that as a result of low demand, “the overall revenue pot will not go up”, and that adding new clients to lending programmes is just “taking money out of clients’ pockets”.

One securities lending head argued that there are new opportunities for beneficial owners in markets such as Brazil and Taiwan where lending fees are high.

However the agent lender said that while such markets do generate high revenue from lending, it is a “short term phenomena” because fees naturally fall as more lending supply enters the market.

He also warned that tougher regulation and capital rules would result in more “peer to peer lending” where some large beneficial owners could decide to lend directly to borrowers, effectively cutting out the agents.

“Regulators will get more shadow banking… which is what they didn’t want,” he said.

In an audience poll some 40% were optimistic about the outlook for the next two years, 39% were pessimistic, while the remainder were neutral.