Global Investor/ISF Canadian lending roundtable:

Canadian market participants met up at the CASLA Conference to discuss the effects of the eurozone crisis, trends in collateral, regulation and improvements in technology.


Chair: Annabelle Palmer, Global Investor/ISF
Charles Murray, Vice President, State Street
Oberon Knapp, Senior Vice President, business development, eSecLending
Nathalie Bockler, Managing Director and Head of Equity finance sales North America, Societe Generale CIB
Mark Fieldhouse, Principal, Mercer
Reeve Serman, Director of trading and Market excecution, Global securities lending, RBCIS
Phil Zywot, Head of Trading, Mellon

Chair: To what extent has the financial crisis and the Eurozone led beneficial owners and lenders to increase their focus on risk management?

Reeve Serman, RBCIS: Risk management is a very large focus within securities lending programmes. It’s almost a given that any credible securities lending agent has sophisticated and dynamic risk management processes and policies in place. Clients are asking a lot of questions around risk specific to the Eurozone.

Any risk management process has to be keyed in to what is happening there and it’s critical to make clear to clients that you, as their lending agent, understand it, are on top of it and are dynamically managing it. Exiting your position expeditiously in the event of a default is another key question both internally and among our clients. You want to ensure that the liquidity of your collateral is sufficient, that you can liquidate the position quickly and can purchase back the security you lent out.

Phil Zywot, CIBC Mellon: Canadian beneficial owners have always had a fairly conservative collateral policy. That conservatism is one of the reasons we were able to emerge from the financial crisis relatively unscathed. But there have been some changes over the last few years in terms of collateral acceptability and the ability to obtain credit has become more difficult. Ten years ago, when you required more credit, it was relatively easy to obtain whereas today you have to put a formal business proposal together and justify the use of credit and satisfy much more rigorous risk mitigation guidelines.

Mark Fieldhouse, Mercer: There is also a greater need for oversight and scrutiny on the lending programmes. The days of a passively run lending programme are gone for the majority of beneficial owners. Active involvement and ongoing communication is the real evolution we’ve seen.

Charles Murray, State Street: Clients are looking to tailor their programmes a lot more than they were. They’re much more specific on the collateral that they want to take, who the borrowers are and the quality of the offering. They are taking a much greater interest in who is on our approved borrower list and how we vet them – and some clients vet borrowers themselves.

For example, a client recently mentioned, ‘with the European downgrades and the US downgrades, soon we’ll only be dealing with Canadian banks and Australian banks’. Which leads to other concentration and pricing issues. Trades are being viewed on a risk reward basis like other investment decisions to ensure restrictions do not eliminate a whole level of expertise.

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