Securities lending to progress in Latin America 29 January 2019Brazil Reporter: Maddie Saghir
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Securities borrowing and lending (SBL) programmes, as well as related strategies, are continuing to make progress in Latin America, EquiLend and the Risk Management Association (RMA) revealed in a new Latin America securities finance user guide.
Fran Garritt, director of securities lending and market risk at the RMA, explained that the report was put together after two “very successful industry conferences, prompting the realisation that the industry could benefit from a working guide to the capital markets, and more specifically securities lending and repo, in Latin America”.
Garritt added: “EquiLend and RMA consulted with experts across the industry and regional contacts—including 2017 conference co-chair Jill Rathgeber of BNY Mellon and Gene Picone of Scotiabank, who moderated both events—to publish this users guide for five of the major markets in the region: Brazil, Mexico, Peru, Argentina and Chile.”
"Historically, there have been numerous efforts to educate the broader industry on the various markets but overall market exposures of foreign investors, as well as restrictive regulatory and operational environments, made entry nearly impossible," he said.
Garritt noted that only time will tell how these changes will affect the markets.
According to the guide, in Argentina, officials are optimistic that an initial securities lending central counterparty (CCP) launched in 2017 will ultimately evolve into a more globally accepted platform.
Meanwhile, Brazil has been focused on implementing best practices around securities finance and is poised to launch its first ever fixed income market for lending, according to the guide.
Additionally, Mexico has bolstered its global pressure in an effort to promote foreign participation, while Peru’s revamped lending processes offer participants improved operational transparency.
According to RMA and EquiLend, Latin America remains a key foreign-investment target with a host of local economies once again on the rebound.
The guide found that Brazil tops the region, while Mexico sits in second. Argentina, Colombia, Chile, Peru, and Ecuador also featured on the list.
Despite this, Latin America’s equity markets remain relatively undercapitalised. Mexico’s economy ranks 15th worldwide with GDP exceeding that of Switzerland and the Netherlands.
EquiLend and RMA highlighted in the guide that you only need to look to Asia, where countries like Korea and Taiwan have built a thriving securities finance market without compromising risk-management practices, for proof that such challenges can be overcome.
He added: “Considering the growth of the Asian securities lending markets over the past 20 years and the Pan-Asia Securities Lending Association’s involvement, this type of information can only lead to healthier conversations across market players and the local exchanges/regulators.”
“As local industry participants continue to work to increase foreign investment, improve efficiencies and increase liquidity, RMA, EquiLend and the securities finance industry hope to provide insight and expertise in creating securities lending models and best practices that work for regulators, exchanges and market participants, and to increase awareness of developments in the region.”
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