Can securities lending programmes be too bespoke?
01 December 2020 US
Image: Africa Studio/adobe.stock.com
Should a beneficial owner strive to be generic and accessible or bespoke and specialist? A panel of buy and sell-side representatives discussed the optimal characteristics of a lender during an IMN’s recent North American securities lending webinar.
From a borrower's perspective, panelist Roelof Van der Struik, investment manager, treasury at PGGM Investments, believes that keeping it “as simple as possible” is the most effective way to construct a lending programme, and suggested that bespoke “generally means more operational risks and more work”.
Whereas, fellow speaker Sunil Daswani, global head of securities lending at Standard Chartered Bank, suggested that it is “time for change” as “for too long the market has been dominated by large programmes”.
Daswani argued that an individualised programme is “definitely the way forward” and that Standard Chartered as the “new kid on the block” has the engine of eSecLending behind it to offer an “a la carte option for a client’s securities lending programme”.
Panel moderator Bill Foley, director of SecFinHub, questioned the speakers on whether there is a danger with securities lending programmes becoming too bespoke.
Melissa Gow, managing director at IHS Markit, responded by saying that the simple answer is “yes”, but the real question is “does it matter?”
She added: “You can customise something where there's no comparison set but we no longer see performance as a metric of a programme, that can include: risk, liquidity, index level return. Does it matter if you are thinking about full programme management?”
Foley posed the question of the potential challenges arising from a market full of bespoke programmes.
Thomas Poppey, co-head of global securities lending at Brown Brothers Harriman, suggested that “it all comes down to engagement with your clients and understanding their objectives with securities lending”.
“Working with clients and understanding their needs, what assets do they want to lend, increasing regulatory landscape and making sure the programme is constructed around their particular limits or constraints, how do they want to see the governance of their programme and working with clients in determining stakeholders,” he explained.
Peer-to-peer lending
In regards to peer-to-peer models, and from a market data perspective, Foley mused whether the industry is seeing more demand from it. Gow observed that the development of a peer-to-peer market was a natural evolution of the modern securities lending marketplace.
“Conversations have been quantitative focused, but we are moving into a more qualitative focus and there are several main categories I would focus on,” she explained. “First, programme structure and governance, second being actionable relevant data, and third a bridge from securities lending into the investment management side.”
Building on this, Daswani said: “Revenues are dwindling, and people do need to work harder, lending peer-to-peer, my perspective is work harder if you want to maintain your revenues.”
IMN will be hosting its next panel discussion on 9 December at 2 pm GMT/3 pm CET on European market trends and regulations and Securities Financing Transactions Regulations.
From a borrower's perspective, panelist Roelof Van der Struik, investment manager, treasury at PGGM Investments, believes that keeping it “as simple as possible” is the most effective way to construct a lending programme, and suggested that bespoke “generally means more operational risks and more work”.
Whereas, fellow speaker Sunil Daswani, global head of securities lending at Standard Chartered Bank, suggested that it is “time for change” as “for too long the market has been dominated by large programmes”.
Daswani argued that an individualised programme is “definitely the way forward” and that Standard Chartered as the “new kid on the block” has the engine of eSecLending behind it to offer an “a la carte option for a client’s securities lending programme”.
Panel moderator Bill Foley, director of SecFinHub, questioned the speakers on whether there is a danger with securities lending programmes becoming too bespoke.
Melissa Gow, managing director at IHS Markit, responded by saying that the simple answer is “yes”, but the real question is “does it matter?”
She added: “You can customise something where there's no comparison set but we no longer see performance as a metric of a programme, that can include: risk, liquidity, index level return. Does it matter if you are thinking about full programme management?”
Foley posed the question of the potential challenges arising from a market full of bespoke programmes.
Thomas Poppey, co-head of global securities lending at Brown Brothers Harriman, suggested that “it all comes down to engagement with your clients and understanding their objectives with securities lending”.
“Working with clients and understanding their needs, what assets do they want to lend, increasing regulatory landscape and making sure the programme is constructed around their particular limits or constraints, how do they want to see the governance of their programme and working with clients in determining stakeholders,” he explained.
Peer-to-peer lending
In regards to peer-to-peer models, and from a market data perspective, Foley mused whether the industry is seeing more demand from it. Gow observed that the development of a peer-to-peer market was a natural evolution of the modern securities lending marketplace.
“Conversations have been quantitative focused, but we are moving into a more qualitative focus and there are several main categories I would focus on,” she explained. “First, programme structure and governance, second being actionable relevant data, and third a bridge from securities lending into the investment management side.”
Building on this, Daswani said: “Revenues are dwindling, and people do need to work harder, lending peer-to-peer, my perspective is work harder if you want to maintain your revenues.”
IMN will be hosting its next panel discussion on 9 December at 2 pm GMT/3 pm CET on European market trends and regulations and Securities Financing Transactions Regulations.
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