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Casla preview: Rob Ferguson, CIBC Mellon

06 May 2014

Casla president Rob Ferguson tells Stephanie Baxter why Canadian securities lending participants should be worried about global regulation ahead of his association’s annual conference on May 8

Read more: Casla Rob Ferguson securities lending

Pressure is mounting on banks to figure out how to use their capital more efficiently as the path to Basel III grows closer.

The increasing threat of international regulations will be particularly evident at the Canadian Securities Lending Association’s (Casla) conference on May 8, which will bring together both Canadian and non-Canadian securities lending market participants to discuss challenges and opportunities.

As Rob Ferguson, Casla president and senior vice-president of capital markets at CIBC Mellon, says: "Global regulatory change will be the biggest talking point at the conference. There will be some focus on local changes, but they are really dwarfed when you compare them to what else is going on in the world. Most of the regulatory change that has been affecting Canadian market participants has been from the US and, to some extent, Europe, with things like the financial transaction tax (FTT), for example."

Although the proposed FTT for 11 European member states still has many hoops to jump through before being finalised, Ferguson says it has already had an impact on Canadian lenders.

"The FTT is really putting a damper on demand for European borrowing, which historically has been a very large part of Canadian beneficial owners’ revenue streams. As a result lenders and borrowers are moving their focus away from Europe a little bit and looking at new markets such as Brazil and the Far East to find other opportunities."

In Canada, regulatory activity has been comparatively light. Ferguson notes the only major change has been to broaden the definition of qualified securities – securities that are allowed to be lent – to include non-Canadian exchange traded funds (ETFs) and real estate investment trusts (Reits).

"It has had a positive impact by including all the exchange-traded assets and therefore creating new supply and demand."

As global securities lending goes through a rough patch, Canadian agent lenders are doing better than some of their US and European peers. Many Canadian banks weathered the credit crisis with robust balance sheets.

"If you have a relatively stronger balance sheet, then you have an opportunity to grow where others might not be able to or even need to optimise balance sheet usage. As a consequence there has been a push from Canadian banks into the US and some are looking towards Europe and South America."

Indeed, local banks such as Maple Bank and BMO have increasingly penetrated the US market as the biggest US banks struggle to meet stringent new capital and counterparty exposure rules.

"At a time when everybody is selling, there is a great opportunity to buy, which is where the Canadian banks are today," adds Ferguson.

Local securities lending agents benefit from strong demand for fixed income lending. Ferguson says: "Demand for Canadian fixed income is high and probably at record highs."

This trend is partly due to Canadian sovereign debt being one of the few able to hold on to an AAA rating, as the country having weathered the credit crisis much better than most others.

"Our [CIBC Mellon’s] programme is hitting highs for the amount that is on loan versus cash and I believe the Canadian market is stronger overall. It is really more of a supply issue here than demand." Demand in the equity market, however, had been 'relatively flat’ and "general collateral lending has remained the same but there has been a lack of real specials".

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