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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
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.