Bas Alberti, treasury manager, Nokia Finance International

Nokia started to implement repo lines with a handful of counterparties approximately eight years ago. The main driver at that time was to add an additional funding channel. Some four years ago, we started to look at reverse repo as a potential investment opportunity. As the daily collateral margining looked very heavy operationally, we quickly opted for the tri-party repo format. We finalised implementing our tri-party repo process three years ago together with Euroclear. 

The key benefit of tri-party repos for corporates is to reduce counterparty risk as well as to enhance yield. And thanks to the facility we outsource our collateral management to our collateral service provider, Euroclear. When we started the process three to four years ago, we discussed it with our European and US peers. Most of them mentioned these key benefits, but each corporate has a different approach. 

Gary McGuire, CIO, Dow Chemical

Corporate lending is not very different from the activity of any other investment manager. In the US, the vast majority of corporate lending programmes existed before Lehman’s collapse. I would say that corporates that used to lend, similarly to pension funds, are now returning to the market. 

The key trend in the market at the moment is the drop in general collateral (GC) lending. We have also departed from trying to profit from the reinvestment of collateral and focused solely on making money from lending specials. 

We are also seeing an increase in third-party lending. The bulk is still lent through custodians but my understanding is that beneficial owners are gradually becoming more in favour of third-party lenders. 

Being overcollateralised, repos offer much greater protection of principal to corporates as compared to traditional bank deposits. In the unfortunate event that the bank counterparty defaults, the corporate can sell the collateral it is holding, in order to minimise the loss given the default and quickly recover its cash, instead of waiting in a queue with other creditors and eventually receiving back considerably less than what was initially invested. Tri-party helps to remove a lot of complexities associated with investing via repos – valuing the collateral and ensuring the securities delivered are as agreed. 

The tri-party agent takes care of all this as well as collateral substitutions, meaning that a transaction is always properly collateralised – or flagged, if not. 

I am not sure that we should expect more corporates to enter the market. As corporates and their boards get more familiar with the concept of repos as an investment instrument, there are still quite a few barriers to entry – global master repurchase agreements (GMRAs), minimum transaction sizes, etc. Due to Basel III, banks need term funding, so they are typically not interested in repos with a tenor of less than one month, at a minimum. 

Meanwhile, many corporates prefer to invest in shorter tenors, synthetically achieved by money market funds, or at least in liquid instruments such as T-bills that they can then sell should they need cash. I feel that not enough is being done to lower the entry barriers to the market for corporates. Banks are slowly signing up to standard agreements such as Euroclear’s repo access agreement, or Clearstream’s CRC, but there are still too few of them, meaning that corporates need to go through lengthy GMRA negotiations, which are often costly due to the need to engage external legal counsel. 

This needs to change and the tri-party agents also need to slim down their paperwork requirements if we are to see a lot more corporates entering the repo market. 

Erik Anderson, senior adviser treasury, Suncor Energy Services 

The size of our securities lending programme has remained the same since its inception in 2011 and we are not planning on increasing it. The motivation to be involved in securities lending for us is 100% income generation, to offset our custody and safekeeping fees. There is no other reason. 

All assets held in safekeeping with our custodian are available for loan, but there is only demand for sovereign debt – T-bills. We have recently changed custodians so I am unable to state what the amount on loan will be going forward, but currently we only have approximately $250m CAD on loan. Regulatory restrictions are managed by our securities lending provider.