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Regulation casts gloom on securities lending

13 May 2014

Audience polls at Euroclear's conference reveal many market participants believe securities lending will be less appealing to beneficial owners

Read more: Euroclear securities lending

Regulations are having a detrimental effect on the securities lending market, according to audience polls at the Euroclear Collateral Conference in Brussels.
In one poll, 43% of delegates said that prime brokers' lack of balance sheet and resources was impacting the size of the market. A smaller proportion – 31% - said lack of supply was the issue, while 26% voted for lack of demand.
In a different poll asking audience members what was the impact of regulations on the securities lending market, the majority (45%) said lower appeal for beneficial owners to lend their securities. Some 32% said regulations would push the market onto central counterparties (CCPs). Other delegates took a more positive attitude, where 17% said the market would be safer, which would encourage beneficial owners to bring additional supply to the market.
A panel discussed the possibility of securities lending transactions being moved onto central clearing. When polled, the majority of the audience (45%) said that central counterparties (CCPs) would not become the main route. Some 35% said it would become the dominant route providing that the model would be adapted to the reality of the business.
Delegates had mixed views on whether collateral transformation trades are yet a reality. More than half (54%) said these transactions are already taking place as more lending is being driven by regulation. Some 42% said they do not see these trades occurring as it is "too early".

The definition of collateral transformation differs among market participants. Some define it as a trade being facilitated through the repo or securities lending markets in order to meet the collateral requirements of centrally-cleared derivatives while others say that collateral transformation is not a new concept as securities lending and repo have been in place for decades.


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