RMASL30: stress ahead
16 October 2013 Boca Raton
Image: Shutterstock
All components of securities lending are under stress from current and upcoming regulations, according to a speaker at the Risk Management Association (RMA) Conference on Securities Lending in Boca Raton, Florida.
Gregory Lyons of the law firm Debevoise & Plimpton LLP is a regular speaker at the RMA Conference on Securities Lending and the association relies him to give attendees an in-depth rundown of the current regulatory landscape.
At the 2012 conference, Lyons described US Dodd-Frank Act Rule 165(e) as “the ghost of Christmas future”, posing a significant threat to agent lending indemnification. This time around, he extended the label to most of the international banking rules that are waiting to come into effect.
Indemnification is viewed as an exposure under international rules, he said, despite the industry viewing it as cheap and safe before the financial crisis took hold in 2008.
The complexity of international rules will cause the most stress to securities lending because they all overlap, he explained. Furthermore, they represent the minimum of what will be implemented in the US.
“There is a slim chance that the US rules will be less restrictive than what will be implemented internationally”, he said, adding that the next year is “high noon” for securities lending, because a lot of legislation will come out at the end 2013 and the beginning of 2014.
A panel of cash management commented on interest rates, with one panellist predicting that they “are going to remain flatlined”.
The panel agreed that the Federal Reserve is unlikely to raise interest rates. One panellist said that the low interest rate environment has caused “a lot of pain” to securities lending clients over the years, resulting in them taking a more conservative approach to lending.
Secondary markets are critical to securities lending clients, which are holding more cash in reserve than they previously did, he added.
Gregory Lyons of the law firm Debevoise & Plimpton LLP is a regular speaker at the RMA Conference on Securities Lending and the association relies him to give attendees an in-depth rundown of the current regulatory landscape.
At the 2012 conference, Lyons described US Dodd-Frank Act Rule 165(e) as “the ghost of Christmas future”, posing a significant threat to agent lending indemnification. This time around, he extended the label to most of the international banking rules that are waiting to come into effect.
Indemnification is viewed as an exposure under international rules, he said, despite the industry viewing it as cheap and safe before the financial crisis took hold in 2008.
The complexity of international rules will cause the most stress to securities lending because they all overlap, he explained. Furthermore, they represent the minimum of what will be implemented in the US.
“There is a slim chance that the US rules will be less restrictive than what will be implemented internationally”, he said, adding that the next year is “high noon” for securities lending, because a lot of legislation will come out at the end 2013 and the beginning of 2014.
A panel of cash management commented on interest rates, with one panellist predicting that they “are going to remain flatlined”.
The panel agreed that the Federal Reserve is unlikely to raise interest rates. One panellist said that the low interest rate environment has caused “a lot of pain” to securities lending clients over the years, resulting in them taking a more conservative approach to lending.
Secondary markets are critical to securities lending clients, which are holding more cash in reserve than they previously did, he added.
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