Pending and proposed regulatory reforms are likely to have major effects on the future of the securities finance industry. To better understand the changing environment and how industry participants can best prepare, BrightTalk.com assembled a panel of experts from State Street and the International Securities Lending Association (ISLA) to discuss:
• What are the relevant provisions for lending agents and borrower counterparties?
• How might regulatory reform change the industry landscape?
• What effect, if any, do these changes mean for asset owners and asset managers that wish to lend their securities in the future? What are the possible new opportunities and benefits to the lending industry?
• As new structures emerge, what should beneficial owners consider?
• Besides reducing market and systemic risk, what other gains are regulators expecting to achieve from new regulations?
The webinar panel moderated by Brendon Maton of BrightTalk consisted of:
Glenn Horner, CFA, FRM
Managing Director, Regulatory Affairs
State Street Securities Finance
Maurice Leo
Senior Managing Director, Head of Relationship Management, EMEA
State Street Securities Finance
Jim McDonald
Senior Managing Director, Head of Global Trading
State Street Securities Finance
Kevin McNulty
Chief Executive Officer
International Securities Lending Association (ISLA)
Dennis Presburg
Vice President, Asset Owner Solutions, EMEA
State Street Global Services
The panel covered a great deal of ground during the 60 minute webinar, collectively making some prognostications about what may lie ahead. The discussion centered around the new capital charges, leverage restrictions, and liquidity ratios, and the effects these changes may may have on lenders, borrowers, and agents operationally and structurally, and how these changes may affect future demand and supply in the lending market.
With lenders generally moving to safety and risk reduction in their lending programs, indemnification remains important to participants in the lending market. The panel went into some interesting detail on the topic of what new regulations may do to the cost and availability of indemnity in securities lending. This feature offered by lending agents has for years been “baked into” the cost of programs to participants, and according to the panel, perhaps was historically underpriced. Going forward, cost of capital may limit indemnity features that agent lenders may be able to offer. Alternatively, agent lenders may turn to third party insurers, thus driving up the cost to lenders, or reducing the profitability to agents. With so many variables and uncertainties yet to be ironed out with respect to capital charges for securities lending, the panel felt that it is premature to try to quantify the potential increase in indemnity costs to both lender and agents at this point in time. On the other hand, however, new regulations presumably are creating a safer securities finance market. Thus, fears associated with counterparties failing to return securities should be lessened resulting in lower indemnity risk across the board.
The panel also discussed the effect stricter counterparty concentration limits may have on lenders like pension funds who use pre-approved counterpart lists, forcing them to revisit and expand those lists to comply with new concentration rules.
The webinar contains a responses to a number of astute questions from the audience, as well as some interesting live polling data of the audience regarding where they think regulation will most affect securities lending going forward.
To watch a replay of the entire webinar and download the accompanying slide presentation visit https://www.brighttalk.com/webcast/2163/108873. If you are not already a BrightTalk subscriber, a brief registration will be required. The webinar is free of charge.