BNY Mellon Asset Servicing Study Highlights Shifts in Securities Lending Model Due to Evolving Risk, Transparency and Regulatory
August 11 2009 - 9:01AM
PR Newswire (US)
NEW YORK and LONDON, Aug. 11 /PRNewswire-FirstCall/ -- Having been
turned on its head by the events of 2008, the business of
securities lending is evolving towards a new paradigm, according to
a new BNY Mellon Asset Servicing research paper. In particular,
fresh dynamics are emerging around inventory and collateral
management, while the role of the agent lender is being recast. The
new study -- Resetting the Roadmap: Managing in a New Securities
Lending Environment for Beneficial Asset Holders -- was produced in
conjunction with independent research and consulting firm Finadium,
drawing on Finadium's ongoing research in custody, securities
lending and prime brokerage, including interviews with 34 leading
public, private and non-profit funds managing nearly $747 billion
in assets. In addition to confirming the tentative recovery now
taking place in the securities lending market, the study draws a
number of conclusions: The role of the agent lender -- a greater
attention to risk will translate into closer working relationships
between asset holders and agent lenders, with the agent in some
ways becoming more like an equity agency brokerage and less a
utilization manager. This process is already occurring, as brokers
can no longer commit large portions of their balance sheet to
general collateral borrowing. Regulation -- regulators are moving
forward to place securities lending in a more clearly defined
category within financial markets. There is recognition of the
liquidity benefits of lending and short-selling, but regulators are
also beginning to think that securities lending is both a market to
be regulated and a means of identifying trading patterns in
underlying products. Transparency -- Regulators have also begun to
shift their attention towards increasing transparency in the
securities lending market, a trend that may be accelerated with the
advent of electronic securities lending marketplaces and central
counterparties. Distinct opportunities and risks for both cash and
non-cash collateral -- an increased use of non-cash collateral has
resulted in benefits arising from portfolio diversification but has
heightened concerns around loan pricing. While most institutions
have already migrated towards a conservative portfolio or are
moving in that direction, this has not meant a wholesale retreat
from the market: only 31% of funds surveyed changed their
securities lending behaviour as a result of collateral losses. The
re-emergence of the 'intrinsic value' model of securities lending
-- an older industry standard, this model produces returns based
upon the securities loan itself, with little incremental benefit
from collateral reinvestments. However, the study notes that
"intrinsic value is not for everyone" and utilising a portfolio
with a view to maximising collateral returns "continues to be
appropriate for some lenders." Josh Galper, Managing Principal of
Finadium, noted: "Agent lenders are pivotal business partners for
beneficial asset holders in securities lending. Going forward, they
will successfully meet their clients' needs by focusing on risk
management and capitalizing on changes in market structure." Kathy
Rulong, Global Head of Securities Lending at BNY Mellon Asset
Servicing, said: "As a leading agent lender with a long-standing
commitment to innovation in this field, we are ideally positioned
to help shape the future of the securities lending industry. By
balancing performance and risk, delivering superior service and
investing in people and technology, we can ensure that our clients
maximize the opportunities available to them." The new study can be
found at:
http://www.bnymellon.com/news/commentaries/assetservicing/roadmap.pdf
Notes to editors BNY Mellon Asset Servicing offers clients
worldwide a broad spectrum of specialized asset servicing
capabilities, including custody and fund services, securities
lending, performance and analytics, and execution services. BNY
Mellon Asset Servicing offers its products and services through The
Bank of New York Mellon and other subsidiaries of The Bank of New
York Mellon Corporation. The Bank of New York Mellon Corporation is
a global financial services company focused on helping clients
manage and service their financial assets, operating in 34
countries and serving more than 100 markets. The company is a
leading provider of financial services for institutions,
corporations and high-net-worth individuals, providing superior
asset management and wealth management, asset servicing, issuer
services, clearing services and treasury services through a
worldwide client-focused team. It has $20.7 trillion in assets
under custody and administration, $926 billion in assets under
management, services $11.8 trillion in outstanding debt and
processes global payments averaging $1.8 trillion per day.
Additional information is available at http://www.bnymellon.com/.
This press release is issued by The Bank of New York Mellon to
members of the financial press and media. All information and
figures source The Bank of New York Mellon unless otherwise stated
as at June 30, 2009. The Bank of New York Mellon, London Branch,
registered in England and Wales with FC005522 and BR000818 Branch
office: One Canada Square, London E14 5AL Authorised and regulated
in the UK by the Financial Services Authority DATASOURCE: BNY
Mellon Asset Servicing CONTACT: Tim Steele, +44-20-7163-5850, , or
Joseph F. Ailinger Jr., +1-617-722-7571, Web Site:
http://www.bnymellon.com/
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