IMN: Indemnification key to lenders’ programmes
02 February 2017 Florida
Image: Shutterstock
Cuts to indemnification would force beneficial owners to shut down their securities lending programmes, according to an asset manager speaking at IMN's Beneficial Owners' International Securities Finance & Collateral Management Conference.
The panellist explained that, although beneficial owners must bear the cost of indemnifying trades, the guarantee of redemption frees up budgets that would otherwise be absorbed by maintaining staff able to assess the counterparty risk associated with a trade.
In a separate panel, beneficial owners that do not have indemnification were advised that their collateral liquidation procedures must be efficient and they must be able to act quickly during a crisis scenario to avoid taking on losses.
Although the cost of retaining indemnification was acknowledged, multiple panellists countered with the opinion that, ultimately, beneficial owners lack the technology infrastructure and expertise to manage the counterparty risk exposures involved in removing that safety net.
Another beneficial owner observed that indemnification also serves to keep agent lenders honest by making sure they have 'skin in the game'.
Agent lenders responsible for making their clients whole may be more motivated to act more efficiently in the case of a trade fail than they may otherwise, explained the speaker.
The panellist explained that, although beneficial owners must bear the cost of indemnifying trades, the guarantee of redemption frees up budgets that would otherwise be absorbed by maintaining staff able to assess the counterparty risk associated with a trade.
In a separate panel, beneficial owners that do not have indemnification were advised that their collateral liquidation procedures must be efficient and they must be able to act quickly during a crisis scenario to avoid taking on losses.
Although the cost of retaining indemnification was acknowledged, multiple panellists countered with the opinion that, ultimately, beneficial owners lack the technology infrastructure and expertise to manage the counterparty risk exposures involved in removing that safety net.
Another beneficial owner observed that indemnification also serves to keep agent lenders honest by making sure they have 'skin in the game'.
Agent lenders responsible for making their clients whole may be more motivated to act more efficiently in the case of a trade fail than they may otherwise, explained the speaker.
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