RMA conference on securities lending: repricing's right
10 October 2012 Miami
Image: Shutterstock
The US Dodd-Frank Act's Section 165(e) was labelled the “anti-shadow banking act of 2012” at the Risk Management Association's (RMA's) 29th Annual Conference on Securities Lending.
Panellists Simon Mandelson of BlackRock, Nick Bonn of State Street, Alan Pace of Citi, James Slater of BNY Mellon and Thomas Wipf of Morgan Stanley questioned applying the rule to securities lending and borrowing.
Slater said that “borrower indemnification is at the heart of this”. The panel agreed that the rule would make securities lending more difficult to do and that beneficial owners would have a tougher time with lending.
The ultimate worry is that borrower default indemnification could disappear as a practice, which is something that “we're all struggling with”, added Slater.
Bonn said that the implementation of Dodd-Frank Section 165(e) is inevitable, but what it will finally look like remains to be seen. “We all have to work to make sure that it's not in this form”, he said, while Slater added: “We're trying to educate regulators about what the unintended consequences are. I'm cautiously optimistic that they will make some adjustments.”
The panel went on to discuss repricing after showing data that suggested that the velocity of rebate rates increased post-2008.
Slater said that market shrinkage and pricing transparency are “driving a lot more repricing”, which has been “good for agent lenders”. But Pace said that hedge funds are not willing to take repricing lying down: “Although this is the new reality, this hasn't been passed all the way down to the client base.”
Bonn called repricing a “necessary evil” as agent lenders have to get the best prices for beneficial owners, while Wipf said that “this is the new paradigm”. He added: “This is a fundamental change to the market. The only surprise is that it's taken this long.”
Panellists Simon Mandelson of BlackRock, Nick Bonn of State Street, Alan Pace of Citi, James Slater of BNY Mellon and Thomas Wipf of Morgan Stanley questioned applying the rule to securities lending and borrowing.
Slater said that “borrower indemnification is at the heart of this”. The panel agreed that the rule would make securities lending more difficult to do and that beneficial owners would have a tougher time with lending.
The ultimate worry is that borrower default indemnification could disappear as a practice, which is something that “we're all struggling with”, added Slater.
Bonn said that the implementation of Dodd-Frank Section 165(e) is inevitable, but what it will finally look like remains to be seen. “We all have to work to make sure that it's not in this form”, he said, while Slater added: “We're trying to educate regulators about what the unintended consequences are. I'm cautiously optimistic that they will make some adjustments.”
The panel went on to discuss repricing after showing data that suggested that the velocity of rebate rates increased post-2008.
Slater said that market shrinkage and pricing transparency are “driving a lot more repricing”, which has been “good for agent lenders”. But Pace said that hedge funds are not willing to take repricing lying down: “Although this is the new reality, this hasn't been passed all the way down to the client base.”
Bonn called repricing a “necessary evil” as agent lenders have to get the best prices for beneficial owners, while Wipf said that “this is the new paradigm”. He added: “This is a fundamental change to the market. The only surprise is that it's taken this long.”
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