Securities lending participants are staying in the market or adjusting their risk parameters rather than suspending their programmes, following the market volatility of the past 12 months, according to a survey by RBC Dexia.
Despite purported large-scale programme suspensions, only 17 per cent of all survey respondents suspended participation while the majority, 60 per cent, made no changes at all to their programmes.
RBC Dexia surveyed beneficial owners and market intermediaries around the world to better understand how the global financial crisis was impacting securities lending and received feedback from 86 respondents worldwide, including investment managers and financial institutions.
The results depict an environment focused on risk mitigation and capital preservation, which 80 per cent of respondents rated as highly important, signalling a shift towards greater oversight and increased involvement in programmes by securities lending participants.
Susan Pike, global head of market products at RBC Dexia, says: “Despite some concerns over the short-term outlook for securities lending in the midst of market turmoil, our survey indicates that lenders have continued to customise programmes to match their risk/reward tolerance rather than withdrawing from the market. It is critical that beneficial owners and asset managers know what they want and expect from their programmes – the key to success is to actively manage, monitor and review policies and procedures on an ongoing basis.”
Respondents that did make parameter changes tended to make multiple alterations that reflected their focus on managing risk. The most common adjustment was in relation to borrowing counterparties, cited by 38 per cent, closely followed by 35 per cent that made adjustments to the type of collateral accepted.
The survey showed that shifts in programme parameters were precipitated by multiple drivers: 65 per cent reported less confidence in counterparty stability; 59 per cent cited lower risk tolerance; 44 per cent sought greater levels of indemnification and provider strength/stability; 32 per cent were influenced by short selling restrictions; and nine per cent wanted to avoid cash reinvestment losses.
RBC Dexia’s survey also sought to explore the perceived link between short selling and the movement of share prices – 92 per cent of respondents said it had some influence. Nevertheless, it was not regarded as a deterrent to securities lending.
