Predicting the future – What will the securities finance landscape look like in 18 months time

The first session at the Data Explorers London Securities Financing Forum has definitely set the scene for a day of interesting debate, as the leading institutions of the securities finance industry debated and predicted what the securities finance landscape will look like in the next 18 months. The panel agrees that there are a large number of pending regulatory changes and possible frameworks being considered. Regulation is still at its formative stage creating uncertainty but Ian Hovey, State Street states that future regulation will be a key feature of our business in the next five years which we need to be prepared for. The panel is in agreement that regulations such as the EU short selling directives are receiving a lot of attention and will continue to do so. The demand and supply sides of the market will be affected over the coming months/years and so it is imperative to understand what the changes will mean and be proactive. A fifth of the audience are currently devoting up to 20% of their time of regulatory issues. Potentially damaging legislation was discussed and ways in which the industry can protect itself.

Quote of the panel: On the two contrasting short selling papers to be published by the EU; “If Marilyn Monroe met Albert Einstein she would say, our children would be great with my looks and your brain, in which Einstein may reply what if it works the other way around?”

The education of beneficial owners made for great debate. Mark Tidy, The Bank of New York Mellon, said that “Beneficial Owners are philosophically engaged” whilst the FSA argues that they require greater education and transparency. Panel agrees that a conscious effort is being made to further educate on the frameworks of securities finance system and risks involved. There is also a duty to educate the wider audience as to why the financial services are able to generate so much money.

It was debated whether cash collateral actually requires a comeback in response to a chart showing 50% cash collateral in the market. Cash collateral will still be considered an important component but may be isolated into different pockets. Paul Stillabower, HSBC, added that cash collateral will be constrained in the future as there will be greater focus upon it.