More routes to market needed, says Citi
31 October 2014 New York
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Changes in market structure and new capital requirements have driven securities lending activity away from a maximum utilisation approach to a more intrinsic one, with beneficial owners now looking for more options to optimise their use of supply, according to Citi.
The bank’s latest report, which focuses on how beneficial owners are looking for more routes to market to maximise their portfolios, suggests that their move to intrinsic lending since the financial crisis has dampened interest in low-value or general collateral deals.
Regulations implemented since the financial crisis have also limited beneficial owners’ interest, according to Citi, with US Dodd-Frank Act Rule 165(e) and Basel III in particular further narrowing the pool of those willing to put their supply out on loan.
Beneficial owners are now looking for more options to optimise their use of supply, reported Citi.
Using their highest value supply in agency lending programmes remains a key part of the emerging ‘solutions’ approach, but beneficial owners are looking to identify additional uses for the un-utilised portion of their lendable supply pool.
This could include directing a portion of these supplies into principal or synthetic lending programmes, or using their assets in collateral programmes where demand for high quality liquid assets is rising due to new OTC clearing rules.
Service providers are in turn enhancing their coverage models to allow beneficial owners to work more fluidly across different areas of their organisations, reported Citi.
Beneficial owners with their own investment management capabilities are also beginning to internalise many lending and collateral functions through the creation of enhanced liquidity management units, it added.
“Changes in market structure and new capital requirements have driven securities lending activity away from a maximum utilisation approach to a more intrinsic one,” commented Sandy Kaul, global head of business advisory services at Citi.
“In order to process these changes, the sell-side must adapt to being a more holistic solutions provider, working to understand, service and optimise the entire breadth of a client’s potential supply pool.”
The bank’s latest report, which focuses on how beneficial owners are looking for more routes to market to maximise their portfolios, suggests that their move to intrinsic lending since the financial crisis has dampened interest in low-value or general collateral deals.
Regulations implemented since the financial crisis have also limited beneficial owners’ interest, according to Citi, with US Dodd-Frank Act Rule 165(e) and Basel III in particular further narrowing the pool of those willing to put their supply out on loan.
Beneficial owners are now looking for more options to optimise their use of supply, reported Citi.
Using their highest value supply in agency lending programmes remains a key part of the emerging ‘solutions’ approach, but beneficial owners are looking to identify additional uses for the un-utilised portion of their lendable supply pool.
This could include directing a portion of these supplies into principal or synthetic lending programmes, or using their assets in collateral programmes where demand for high quality liquid assets is rising due to new OTC clearing rules.
Service providers are in turn enhancing their coverage models to allow beneficial owners to work more fluidly across different areas of their organisations, reported Citi.
Beneficial owners with their own investment management capabilities are also beginning to internalise many lending and collateral functions through the creation of enhanced liquidity management units, it added.
“Changes in market structure and new capital requirements have driven securities lending activity away from a maximum utilisation approach to a more intrinsic one,” commented Sandy Kaul, global head of business advisory services at Citi.
“In order to process these changes, the sell-side must adapt to being a more holistic solutions provider, working to understand, service and optimise the entire breadth of a client’s potential supply pool.”
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