Opportunities Abound Despite Regulatory Hurdles 19 May 2011London Reporter: Will Duff Gordon
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The challenge when discussing how regulation like Dodd Frank will affect this industry is to avoid leaving the impression that these changes will make business more difficult full stop. Of course, the sheer number of proposed changes are daunting but no one should underestimate the ability banks have to adapt and move on to make money in a different way. Thursday May 26th is our New York Securities Financing Forum, where the region’s leading professionals and thought leaders will gather to discuss regulation and the tensions within the securities finance industry, along with some ground breaking new academic research on the effects of short selling public disclosure. We have 200 registered attendees with representation from the buy side, sell side and agent lenders.
Rochester ‘Rocky’ Cahan from Deutsche Bank will explain how to turn the exhaust from securities lending trade flows into money. The results of his study are robust and provide independent evidence that there are profitable trading signals in this information.
There will be genuinely new insight coming out of the academic presentation by Adam Reed of the University of North Carolina. Together with Professor Charles Jones of Columbia University, they were challenged to uncover the true impact of public short selling disclosures. Their research is based on the UK disclosure regime and we are pleased that Adam has chosen to present his findings for the first time at our Forum. The market impact study is particularly pertinent ahead of crucial legislation being considered by the European Union and now up for consultation by the SEC. An impartial study on this topic should serve the industry well especially if it shows adverse consequences from naming and shaming short sellers.
The SEC investigations into insider trading and the Galleon case are clearly emboldening compliance departments to put the brakes on public engagement – a challenge in trying to build a panel aimed at understanding what the hedge funds want from their prime brokers. I do worry that an industry with no voice will struggle to defend itself. Fortunately there will be masses of top tier hedge funds in the audience who will no doubt express their views through our anonymous interactive voting handsets.
Agent lenders are braced with the twin threats of demanding beneficial owners on the one side and the balance sheet challenged brokers on the other. It will be interesting to see whether funds who lend have unrealistic expectations at present. The rampant growth of ETFs are central to the securities lending debate. It will be interesting to see if the arrows aimed by the FSB/BIS/IMF reports at the securities lending components of the ETF industry will have a lasting impact.
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