NY Securities Financing Forum: Industry leaders – What are the macro factors that will affect the securities financing industry?
Industry leaders – What are the macro factors that will affect the securities financing industry?
Panelists:
- Timothy Douglas, Citi
- Brian Lamb, Equilend
- Ugyen Sass, Fidelity
- James Slater, BNY Mellon
- Moderator: Mark Faulkner, Data Explorers
Last but not least, a group of industry titans discussed which macro factors will most affect securities financing. With our founder, Mark Faulkner moderating the discussion, it was most certainly entertaining and informative.
To kick things off, Mark polled the audience as to whose business model is going to change the most in the future? The response:
Beneficial owners – 3%
Agent lenders – 43%
Prime brokers – 40%
Hedge funds - 13%
It was clear from the discussion that there are good intentions to remove systemic risk from the market, but as one panelist put it, right now it’s a matter of “road under construction,” when it comes to navigating the myriad regulatory proposals, and this is their number one focus. Models to look at different ramifications of capital requirements or regulatory rules have become commonplace, with “hundreds” people dedicated to understanding implications of the Orderly Liquidation Authority (OLA) and “bridge vehicles.”
"Are indemnities worth it?"
The panel was unclear as to the price and relevance of an indemnification in today’s market. One panelist predicted that the U.S. Agent Lending market could take a leaf out of the book of European and Canadian markets, where non cash collateral is more prevalent and indemnities more straightforward to price.
Prime brokers are focused on the changes taking place with the organizations with whom they transact. For instance, they see change across entire spectrum as to who participants are and how they define themselves in the market. As one panelist put it, "who’s competing with whom?" More beneficial owners are investing in hedge funds and more hedge funds are lending their long assets.
Clearly the market has changed and the pace of change has increased substantially. People are somewhat on their heels and being asked to do more with less. Participants are trying to use solutions that will enable them to scale their business and are expected to do more with less people, less manual involvement, less capital – less of everything.
The way markets mature in nature is to be more clear and distinct about pricing. Demand is back to pre-crisis levels, and assets in hedge funds are close to where they were three years ago, so ammunition is there for the demand to increase. What are required are more deals, greater conviction and more leverage.
