Strong institutional participation, stabilised fee splits and concern over indemnification were just three of the trends that Finadium identified in its securities lending survey.
“Institutional investors have become more comfortable with their securities lending programmes as risk is managed closely, minimum spreads have been mandated and the market appears less frothy than it once was,” said the report.
“We are now past the days when many institutions sought to end or pause their securities lending activities; now rather large institutions appreciate the steady, albeit reduced, revenue stream that lending generates, while smaller funds may have ended their programmes due to low demand. Unless indemnification creates significant change, we expect that most large and mid-sized institutional investors will stay in securities lending and continue to earn a reduced but predictable revenue stream.”
The report added that large institutions are surprised that their agent lenders have not had more conversations with them on the topic of indemnification.
“Several executives said that they had heard about potential changes due to capital charges and have asked questions about it, but have a hard time getting a straight answer about the impact on future costs. This is a legitimate question but also a legitimate response from agent lenders; there are still a host of uncertainties to consider in the lending business.”
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