RMA conference on securities lending: repricing's right
10 October 2012 Miami
Image: Shutterstock
The US Dodd-Frank Act's Section 165(e) was labelled the 鈥渁nti-shadow banking act of 2012鈥� at the Risk Management Association's (RMA's) 29th Annual Conference on Securities Lending.
Panellists Simon Mandelson of BlackRock, Nick Bonn of State Street, Alan Pace of Citi, James Slater of BNY Mellon and Thomas Wipf of Morgan Stanley questioned applying the rule to securities lending and borrowing.
Slater said that 鈥渂orrower indemnification is at the heart of this鈥�. The panel agreed that the rule would make securities lending more difficult to do and that beneficial owners would have a tougher time with lending.
The ultimate worry is that borrower default indemnification could disappear as a practice, which is something that 鈥渨e're all struggling with鈥�, added Slater.
Bonn said that the implementation of Dodd-Frank Section 165(e) is inevitable, but what it will finally look like remains to be seen. 鈥淲e all have to work to make sure that it's not in this form鈥�, he said, while Slater added: 鈥淲e're trying to educate regulators about what the unintended consequences are. I'm cautiously optimistic that they will make some adjustments.鈥�
The panel went on to discuss repricing after showing data that suggested that the velocity of rebate rates increased post-2008.
Slater said that market shrinkage and pricing transparency are 鈥渄riving a lot more repricing鈥�, which has been 鈥済ood for agent lenders鈥�. But Pace said that hedge funds are not willing to take repricing lying down: 鈥淎lthough this is the new reality, this hasn't been passed all the way down to the client base.鈥�
Bonn called repricing a 鈥渘ecessary evil鈥� as agent lenders have to get the best prices for beneficial owners, while Wipf said that 鈥渢his is the new paradigm鈥�. He added: 鈥淭his is a fundamental change to the market. The only surprise is that it's taken this long.鈥�
Panellists Simon Mandelson of BlackRock, Nick Bonn of State Street, Alan Pace of Citi, James Slater of BNY Mellon and Thomas Wipf of Morgan Stanley questioned applying the rule to securities lending and borrowing.
Slater said that 鈥渂orrower indemnification is at the heart of this鈥�. The panel agreed that the rule would make securities lending more difficult to do and that beneficial owners would have a tougher time with lending.
The ultimate worry is that borrower default indemnification could disappear as a practice, which is something that 鈥渨e're all struggling with鈥�, added Slater.
Bonn said that the implementation of Dodd-Frank Section 165(e) is inevitable, but what it will finally look like remains to be seen. 鈥淲e all have to work to make sure that it's not in this form鈥�, he said, while Slater added: 鈥淲e're trying to educate regulators about what the unintended consequences are. I'm cautiously optimistic that they will make some adjustments.鈥�
The panel went on to discuss repricing after showing data that suggested that the velocity of rebate rates increased post-2008.
Slater said that market shrinkage and pricing transparency are 鈥渄riving a lot more repricing鈥�, which has been 鈥済ood for agent lenders鈥�. But Pace said that hedge funds are not willing to take repricing lying down: 鈥淎lthough this is the new reality, this hasn't been passed all the way down to the client base.鈥�
Bonn called repricing a 鈥渘ecessary evil鈥� as agent lenders have to get the best prices for beneficial owners, while Wipf said that 鈥渢his is the new paradigm鈥�. He added: 鈥淭his is a fundamental change to the market. The only surprise is that it's taken this long.鈥�
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