IMN: Regulation replaces technology as main disruptor
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IMN: Regulation replaces technology as main disruptor 06 February 2019Fort Lauderdale Reporter: Maddie Saghir
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Regulation will be the biggest disruptor this year, replacing technology and macroeconomics, revealed a panellist speaking on the outlook of the securities finance industry at IMN's 25th Anniversary Beneficial Owners' International Securities Finance & Collateral Management Conference.
The panellist explained: “Regulation is the biggest disruptor because it feeds the technology. The regulatory environment has really helped people ‘sharpen their pencils’ on all of the costs associated with transacting in the securities lending space.”
“In this business, you have pricing power on both sides of the equation, and you don’t necessarily have to change the fee splits with the beneficial owners. You need to create a discipline on the trading desk and you have to pass that discipline on.”
Discussing market volatility, the moderator asked panellists how it has changed securities lending. One speaker said: “Hedge funds generally thrive in market volatility and for the first three quarters of 2018 we saw that strength, and we have talked a lot about the record returns that beneficial owners experienced.”
“As we headed into Q4, due to political pressures, for example, the US and China trade wars and concerns around Brexit, there was a creation of a lot of unprecedented market volatility and with that came subdued securities lending volumes and fees.”
Another speaker cited: “It is encouraging to see fee splits come back to something that is
more palatable, and that enables agent lenders to invest in these new types of technology and remove some of the manual burdens and to manage expectations.”
Looking to the future, the moderator asked panellists how they see securities lending change over the next few years. In response, one panellist said that they are excited for the future of securities lending.
They commented: “I think we will see a few new markets open up, for example in Saudi Arabia, and when new markets open up there will be a different type of activity.”
Another speaker added: “We are seeing new entries into the market, and this is all very positive for the industry, however, we are seeing securities lending demand remain somewhat stagnant.”
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