New trade structures, new markets, collateral flexibility and a broader list of niche borrowing counterparties are boosting securities lending returns for beneficial owners in the current low-rate investment climate.

That’s the view of Sunil Daswani, international head of securities lending for Northern Trust, who specifically looks after the Chicago-headquartered bank’s business in Europe, the Middle East, Africa (EMEA) and Asia Pacific.

After buoyant lending volumes in 2015, during which revenues from securities lending programmes globally topped $8.6bn over the twelve months according to DataLend stats, Daswani says there are several market trends at play which could boost incremental returns for lenders.

“Regulation, particularly Basel III, requires banks to have access to high quality liquid assets, creating a consistent demand for government bonds,” he said speaking to Global Investor/ISF. “In this regard, lenders with the right assets can generate higher returns.”

The growing phenomenon of term lending has similar drivers, notably the strain on sell-side balance sheets stemming from Basel III, and is another potential earner for Daswani’s clients including asset managers, pension fund, mutual funds, insurance and sovereign wealth clients.

“Increasingly prime brokers don’t want to borrow on an overnight basis, they prefer to lock in trades for longer periods now,” he explains. “In order to take advantage, clients need to commit to holding assets for a longer period.

“That, in turn, creates more dialogue with clients on their risk appetite for  these new types of term structures.”

Newer markets with higher fees on offer also present a significant opportunity for additional income, with Turkey, Malaysia and Brazil the three countries to watch out for in 2016, Daswani reckons.

When it comes to the latter, Brazil, equity lending fees are “exceptionally high” in some cases, he adds.

Increasing the list of available counterparties is also something Northern Trust sees as being valuable for clients.

“In some cases we are looking at niche players on the borrowing side that have pockets of demand, which a traditional borrower doesn’t,” he explains. “As a result more assets can go out on loan and generate revenue.”

Flexibility when it comes to collateral, i.e non-cash, is another important consideration.

Daswani expects the trends highlighted above to continue for the foreseeable future, benefitting willing lenders. More broadly, he predicts that lending volumes globally will continue to rise.

“We continue to see a high levels of interest from beneficial owners looking to generate incremental revenue in a low-rate environment.

“Over the last 8 years in fact, I would argue that securities lending as a product has continuously evolved and become far more robust, there’s greater education in the market and transparency has improved.”

Indeed Daswani believes 2008’s financial crisis somewhat alleviated or removed certain myths, particularly around short selling, that had previously hampered the industry.

When it comes to Northern Trust, the firm’s securities lending team is now made up of approximately 200 staff globally and business appears to be on the rise.

Over $50bn worth of new assets have been added to Daswani’s EMEA business alone since January 2016 through a mixture of custody related and third-party deals.

Clients are being added across the board, particularly sovereign wealth funds and asset owners based in Australia, where the bank continues to grow its physical presence.

“We’re a US bank, but our global nature and equal split of assets across regions makes our offering and expertise compelling,” adds Daswani.

“We expect client growth to continue.”