Jon Whiting of State Street Global Markets provides a short update on Latin America for agent lenders and beneficial owners, revealing that the continent is on its way—in Brazil at least
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How would you describe the current state of securities lending in Latin American markets such as Brazil, Mexico and Chile?
Securities lending is quite well established for onshore participants in Brazil and it’s developing for non-local entities. The agent lender and beneficial owner communities are increasingly knowledgeable of Brazil’s lending market structure given their interest in the market’s potential return relative to more mature lending markets.
We’ve participated in Mexico’s developed lending market for a number of years. It’s an efficient, same-day settlement market with strong supply liquidity, but there are limited pockets of demand.
Finally, while we see some demand for Chilean equities—and particularly for those held by onshore lenders—a tax withholding issue in connection with cash collateralised loans remains.
Is any country (eg, Colombia, Peru and Chile) closing on Brazil in terms of market cap and lending activity? If so, what would you attribute this to?
I don’t believe any of the countries listed are close to Brazil in terms of market cap, lending volumes or development of their lending structures at this time. We’ve seen initial interest in Colombia, Peru and Chile, but I would say it’s muted at best. On a relative basis, the interest for the latter Latin American markets is minor in comparison to Brazil.
What is the situation with collateral in Brazil?
Collateral can be held offshore in Brazil, but it would be in addition to the collateral requirements documented by the BM&F Bovespa/BTC. I don’t think the ability to hold collateral offshore (as the primary collateralisation of lending contracts) is an absolute must for Brazil to become an established lending market for offshore entities.
However, the current collateral restrictions definitely limit the growth and total size of the Brazilian lending market given that they essentially prevent certain client types and clients from certain domiciles from participating.
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