Sneak Peek of the New York Securities Financing Forum –Themes in US Securities Lending
Tue, 2011-04-05 17:36
The onset of spring means that our New York Forum is around the corner and we are turning our attention to this event to ensure a healthy debate about the future of securities financing in the US. With 9 sponsors and great momentum off the back of last month’s London forum, there is every reason to think it can live up to its tag line of, “debate, define, drive”. By virtue of its location in the Four Seasons Hotel near central park we have the advantage of solid buy side attendance, which will add an interesting perspective to the discussions. We can look ahead to some of the panel subjects but we also ask for YOUR feedback on any issues that you’d like to see on the agenda.
We are pleased to again have Matt Miller from Bloomberg TV to anchor the day. Not only is Matt the best dressed dandy on US television but he will also ensure that panelists don’t reach a cozy consensus!
We expect plenty of interest in Professor Adam Reed’s presentation of the work he has been doing into the effect of public short selling disclosures on share prices. Adam is an Associate Professor of Finance at North Carolina University and has been working with Professor Charles Jones of Columbia University. They are basing their findings on the UK public short positions over 0.25% in Financials along with the Data Explorers data. Having seen some early results I can report that it is very relevant especially with so many regulators looking at instituting more transparency. Does this disclosure encourage “follow the leader” and thereby make a short position even bigger? Does it lead to a form of predatory trading whereby the share price starts to rally after the disclosure? This will be the first time that anyone has carried out any empirical analysis on the effects using data from 2009 to present.
The day will inevitably kick off with a debate around the effect that regulation is likely to have on this business. In other years there might has been a “regulation” panel, but with the Dodd Frank bill now translating into SEC action it is a very relevant question occupying much of people’s time. At the London event, 80% of the audience said they spent between 10% and 25% of their time on regulation and it will be interesting to see if this is similar in the US.
We should get a lively set of views expressed when we drill into the future of Securities Finance two years on from Lehman’s default. Very little has seemingly changed with the massive Agent Lenders still dominating, yet many questions remain. At a time when capital adequacy is so important it is interesting that the dominant route to lending securities is done on an Agency basis, whereby the Beneficial Owner is unprotected by their Custodian’s capital. Or are they? Does the fact that prime brokers now know the name of the fund they are ultimately borrowing from (under the Agent Lender Disclosure) make it harder for smaller beneficial owners to get approved? Wouldn’t it be far easier to use a well capitalized central counterpart?
The other strain to put on the table for this panel is to ask whether it is sustainable for Custodians to squeeze every last drop from the intrinsic lending fee given the lack of income available via cash reinvestment with low interest rates. Various prime brokers will tell you that this makes some of the hedge funds withdraw from the trade where the carry cost is so high.
There isn’t space to preview every panel of the day but we will also discuss the hedge fund vs. prime broker relationship, as well as ETFs. Then, as is customary, the day will be rounded off with industry heavyweights weighing up the macro factors most relevant to securities finance going forward. We hope to see you there and please let us have any suggestions you may have for subjects to discuss. See more information and the full agenda at www.dataexplorers.com/newyork.
