Straight to the basis point
14 May 2013
CASLA’s 3rd Annual Conference on Securities Lending saw the appointment of the association’s new president, and some lively panel debates
Image: Shutterstock
Anyone who read last year’s report will know I spent too much time talking about the social scene and not enough time focusing on the reason for visiting Canada. This year it is all about the main event—the 3rd Annual Conference on Securities Lending from the Canadian Securities Lending Association (CASLA), which attracted more than 160 delegates.
The conference began with Rob Chiuch of BNY Mellon giving a brief overview of the work that CASLA has done over the past year. Chiuch then welcomed incoming president and conference chair Rob Ferguson of CIBC Mellon and shared a short story on how the two first met in the 1980s when he was a junior stock loan clerk and Ferguson was working for a technology company.
Once on the podium, Ferguson spoke briefly about CASLA’s response to the Financial Stability Board’s Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos and went on to welcome the first panel of the day covering legal and regulatory issues.
Christopher Steeves of Fasken Martineau, Bill Young of State Street, Mike McAuley of BNY Mellon and Margaret Grottenthaler of Stikeman Elliot ran through a Canadian tax update, the EU Financial Transaction Tax (FTT) and recent developments in securities lending coupled with Canadian regulatory concerns.
Drawing delegates’ attention to the FTT, McAuley called it “a very far reaching piece of legislation”. Eleven EU member states have invoked enhanced cooperation to push through the tax, which has been mooted in Europe before and is already active in France and Italy.
Young said: “Noticeably absent from the 11 members was the UK, Ireland and Luxembourg who are opposed to the legislation.”
The Canadian securities lending industry should take note because of issuance and residency principles. The panel went over numerous examples of how a tax set at 10 basis points would be charged on the value of the trade to both borrower and lender. Both would be “joint and severely liable”, according to one panel member.
David Kaufman of Westcourt Capital moderated a panel on the hedge fund space in Canada. Panellists included Tom Sabourin of Polar Securities and Les Marton of Scotia Capital.
The panel began with the question of what a hedge fund is and looked at how it is often misunderstood and assumed to be riskier than many other forms of investment. “A hedge fund is not just a compensation model,” stated Kaufman. “What separates a hedge fund from a mutual fund or other forms of funds is typically ... leverage, swaps and derivatives. [They are] used to both leverage returns and minimise risk.”
Moving onto challenges and opportunities in Canada, the overwhelming theme was intellectual talent. “Prop desks are being shrunk so for hedge funds there is real talent out there to recruit,” said Sabourin.
Another observation about the market was the way funds are perceived in terms of their size descriptions, Micro cap in the US is $500 million or less, but with Canada’s being smaller, they would not meet this description, When asked what the average size is on entering the market, the majority of the panel felt that it is likely to be around CAD $10 to 20 million.
The global equity update was chaired by William Mascaro of Citi. Panellists included Nathalie Bockler of Societe Generale, TJ Gilligan of Markit Securities Finance and Steve Schneider of Morgan Stanley.
Tackling a number of areas ranging from volumes to opportunities beyond 2013, it was observed that volumes are steady but spreads are contracting. According to Gilligan, the long-short indicator backs this up, but he questioned whether sentiment is dropping off. “It is when supply goes un-utilised that we all lose,” added Schneider. “Furthermore, from what we have seen, gross exposure is at a five year high”.
The panel looked at other trends and changes in the market. Bockler has observed pension fund managers trying to take a more active role, adding that many are bringing the functions that were previously carried out by asset managers in-house.
Discussing wider trends, use of single stock futures is on the increase in Europe and the US according to the panel. Collateral flexibility and expansion have been discussed with clients, but beneficial owners need to step up and embrace them.
For the first time at CASLA’s securities lending conference, delegates were treated to a fixed income panel. Charles Lesaux of RBC Capital Markets took the lead. Oscar Huettner of BondLend was among the panellists.
He spoke about global trends affecting the business and one of the main difficulties: “Record interest rate lows around the world is a major factor in making it a difficult market for fixed income guys”.
There is concern that the prolonged period of soft rates will affect how people will deal with rate rises and some could be caught off guard, said the panel. There are also fewer participants in the market, while most banks are working with less leverage, resulting in decreased liquidity. The fear is that interest rates will not go up and businesses will not have the balance sheets to cope, according to the panel.
The conference began with Rob Chiuch of BNY Mellon giving a brief overview of the work that CASLA has done over the past year. Chiuch then welcomed incoming president and conference chair Rob Ferguson of CIBC Mellon and shared a short story on how the two first met in the 1980s when he was a junior stock loan clerk and Ferguson was working for a technology company.
Once on the podium, Ferguson spoke briefly about CASLA’s response to the Financial Stability Board’s Policy Framework for Addressing Shadow Banking Risks in Securities Lending and Repos and went on to welcome the first panel of the day covering legal and regulatory issues.
Christopher Steeves of Fasken Martineau, Bill Young of State Street, Mike McAuley of BNY Mellon and Margaret Grottenthaler of Stikeman Elliot ran through a Canadian tax update, the EU Financial Transaction Tax (FTT) and recent developments in securities lending coupled with Canadian regulatory concerns.
Drawing delegates’ attention to the FTT, McAuley called it “a very far reaching piece of legislation”. Eleven EU member states have invoked enhanced cooperation to push through the tax, which has been mooted in Europe before and is already active in France and Italy.
Young said: “Noticeably absent from the 11 members was the UK, Ireland and Luxembourg who are opposed to the legislation.”
The Canadian securities lending industry should take note because of issuance and residency principles. The panel went over numerous examples of how a tax set at 10 basis points would be charged on the value of the trade to both borrower and lender. Both would be “joint and severely liable”, according to one panel member.
David Kaufman of Westcourt Capital moderated a panel on the hedge fund space in Canada. Panellists included Tom Sabourin of Polar Securities and Les Marton of Scotia Capital.
The panel began with the question of what a hedge fund is and looked at how it is often misunderstood and assumed to be riskier than many other forms of investment. “A hedge fund is not just a compensation model,” stated Kaufman. “What separates a hedge fund from a mutual fund or other forms of funds is typically ... leverage, swaps and derivatives. [They are] used to both leverage returns and minimise risk.”
Moving onto challenges and opportunities in Canada, the overwhelming theme was intellectual talent. “Prop desks are being shrunk so for hedge funds there is real talent out there to recruit,” said Sabourin.
Another observation about the market was the way funds are perceived in terms of their size descriptions, Micro cap in the US is $500 million or less, but with Canada’s being smaller, they would not meet this description, When asked what the average size is on entering the market, the majority of the panel felt that it is likely to be around CAD $10 to 20 million.
The global equity update was chaired by William Mascaro of Citi. Panellists included Nathalie Bockler of Societe Generale, TJ Gilligan of Markit Securities Finance and Steve Schneider of Morgan Stanley.
Tackling a number of areas ranging from volumes to opportunities beyond 2013, it was observed that volumes are steady but spreads are contracting. According to Gilligan, the long-short indicator backs this up, but he questioned whether sentiment is dropping off. “It is when supply goes un-utilised that we all lose,” added Schneider. “Furthermore, from what we have seen, gross exposure is at a five year high”.
The panel looked at other trends and changes in the market. Bockler has observed pension fund managers trying to take a more active role, adding that many are bringing the functions that were previously carried out by asset managers in-house.
Discussing wider trends, use of single stock futures is on the increase in Europe and the US according to the panel. Collateral flexibility and expansion have been discussed with clients, but beneficial owners need to step up and embrace them.
For the first time at CASLA’s securities lending conference, delegates were treated to a fixed income panel. Charles Lesaux of RBC Capital Markets took the lead. Oscar Huettner of BondLend was among the panellists.
He spoke about global trends affecting the business and one of the main difficulties: “Record interest rate lows around the world is a major factor in making it a difficult market for fixed income guys”.
There is concern that the prolonged period of soft rates will affect how people will deal with rate rises and some could be caught off guard, said the panel. There are also fewer participants in the market, while most banks are working with less leverage, resulting in decreased liquidity. The fear is that interest rates will not go up and businesses will not have the balance sheets to cope, according to the panel.
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