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Equilend : EquiLend 10th Anniversary
Stimulating growth: a role for EquiLend “at the top of our wish list for the next ten years is more automation of the equilend platform,” says Fred Nadd- aubert, global head of securities lending marketing at Credit Suisse. “Specifically we would like to see the development of an integrated front-to-back solution system, with a broader reach, that can integrate more easily into different systems. Securities lending still operates in an environment that is too manual. the benefit of providing a more controlled environment – specifically the introduction of a full books and records system – will be huge. as in any business, as you automate you can grow the business in a more cost-efficient manner.” Prime brokers are also more cautious, in part because of the current regulatory uncertainty. In the absence of regulatory clarity over capital and liquidity requirements at the banks, following the Basel III requirements published at the end of last year, their appetite to extend leverage remains low. Meanwhile in the US, it is still not clear how the SEC will enforce greater transparency requirements contained in the Dodd-Frank Act. CoLLaTEraL: an aLTErnaTivE fuTurE For many years the industry has been asking for greater flexibility to make borrowing more palatable on the margin for dealers in the US. So far, participants have had little success, despite widespread evidence for the benefits of this route. The Lehman crisis demonstrated that non-cash collateral can work well in a crisis: lenders were able to sell their non-cash collateral and buy back the securities they’d lent with very few problems. The second, technical argument, is that where equities posted as collateral are correlated with those on loan, the owner benefits from retaining the market exposure despite not holding the actual stock. This means that in the event of counterparty default, the lender may be able to lock in the gains the stock has made since it was lent out in a way that would not have been possible had the collateral been cash. frequently not financial experts, have severe limits on their time and will often be satisfied with a cursory examination of the subject. This means that, while many may grasp the broad mechanics of securities lending, the subtleties regarding potential conflicts of interest and the difference between custodian and asset manager programmes are beyond most. brEaks on dEmand While supply has rebounded well, the same is not true of demand. At the heart of depressed demand, and the key to its return, are levels of leverage. Both the levels of borrowing and the size of individual shorts have dropped, report brokers, because of the scarcity of leverage in the system. Investor pressures are an important part of this because through the crisis they reined in the appetite of their hedge funds for greater gearing. “ The wariness is coming in part from investors who have also moved to require increased transparency in the investment processes of their managers,” explains McNulty. “But hedge funds are now appealing for greater freedom. They are saying to me that they are having more involved conversations with investors around increasing the level of investment risk in their portfolios.” Hedge funds are saying to me they are having more involved conversations with investors around increasing the level of investment risk in their portfolios” Kevin McNulty, ISLA the neXt ten years www.equilend.com 19 >> EL.indb 19 26/08/2011 09:56