Securities Finance Americas Guide 2020 Summer 2020 Securities Finance Americas Guide 2020 Securities Finance www.globalinvestorgroup.com RESILIENCE ESG WHAT DOES THE RISE Experts consider how OF ESG MEAN FOR SECURITIES FINANCE? the pandemic affected securities finance PEER pressure THE LATEST ON THE EMERGENCE OF PEER-TO- DIVERSITY PEER LENDING IN THE US COUNTRY Women in Securities PROFILES Finance discuss The latest securities finance developments promoting diversity in the region’s key markets Flexibility. Reliability. Durability. There’s No Substitute for Certainty. certainty-bnymellon.com Americas_170x224_V2_NV.indd 1 7/7/20 1:28 PM CONTENTS Contents General manager Will Browne 4 Experts discuss how the Covid-19 Tel: +44 (0) 20 7779 8309 [email protected] pandemic has affected the securities Managing editor Luke Jeffs finance market, both in terms of demand Tel: +44 (0) 20 7779 8728 [email protected] and relationships, and what practices will be Securities finance editor Oliver Wade carried into a post-pandemic world Tel: +44 (0) 207 779 8430 [email protected] 9 BNP Paribas explains how the bank’s Senior reporter Perle Battistella Tel: +44 (0) 207 779 8028 investment in its securities finance 4 [email protected] business has expanded its offering in Design and production Antony Parselle [email protected] preparation for gaining market share in the Head of events operations and marketing Americas Velida Cajdin Tel: +44 (0) 20 7779 8188 13 Members of the Global Peer Financing [email protected] Association tell Global Investor what they Senior conference producer Oliver Blokland hope to achieve and assess the level of Tel: +44 (0) 207 779 8088 [email protected] demand for peer-to-peer lending in the US Events assistant Rose Allen 18 “Effective communication is a critical [email protected] element of success,” argues Matt Wolfe, 9 FOW Head of global business development Hanna DeBank vice president of securities finance at OCC, Tel: +65 6224 1040 / Mob: +65 8766 9841 the US clearing giant [email protected] Business development executive 21 Lending experts consider the impact of Jamie McKay Tel: +44 (0) 207 779 8248 ESG on the securities finance industry and [email protected] how beneficial owners, agent lenders and Head of sales Tim Willmott Tel: +44 (0) 20 7779 7216 borrowers are reacting [email protected] 26 Securities finance expert Pirum details its Reprints Christine Jell [email protected] plan to expand its interests in the world’s 13 Divisional director Jeff Davis largest market for securities finance and Chairman Leslie Van de Walle repo Chief executive Andrew Rashbass Directors Jan Babiak, Kevin Beatty, Andrew 29 Kidwell Consultants’ Jeffrey Kidwell Billingal, Tim Collier, Colin Day, Tristran Hillgarth, discusses how the US Federal Reserve has Imogen Joss, Wendy Pallot, Lorna Tilbian SUBSCRIPTIONS entered uncharted territory UK hotline (UK/ROW) Tel: +44 (0)20 7779 8999 33 WeMatch co-founder & head of EMEA US hotline (Americas) Tel: +1 212 224 3570 David Raccat explains how the platform is [email protected] gearing up and its services are developing 21 RENEWALS ahead of its US launch Tel: +44 (0)20 7779 8938 [email protected] 35 Women in Securities Finance aims to CUSTOMER SERVICES Tel: +44 (0)20 7779 8610 create a diverse and inclusive community to [email protected] foster connections and promote the growth GLOBAL INVESTOR 8 Bouverie Street, London, EC4Y 8AX, UK of women in our industry globalinvestorgroup.com Global Investor (USPS No 001-182) is a full 37 Country Profiles: Global Investor tracks service business website and e-news facility with all the key securities finance and repo supplementary printed magazines, published by Euromoney Institutional Investor PLC. developments in the main Americas 29 ISSN 0951-3604 markets © Euromoney Institutional Investor PLC London 2020 3 Securities Finance Americas Guide 2020 SECURITIES FINANCE How securities finance remains resilient during a global pandemic Market experts discuss how the Covid-19 pandemic has affected the securities finance market, both in terms of demand and relationships, and what practices will be carried into a post-pandemic world Covid-19, commonly known as the presented the market with a number of Coronavirus, has shaken global economies and opportunities, while enabling agent lenders had devastating impacts on both businesses to strengthen their relationships with their and individuals. However, despite the path beneficial owner clients. of destruction left by the virus, the global While global securities lending revenue securities finance market has demonstrated was down 14% year-on-year in the first half its adaptability by remaining resilient. Not of 2020, as highlighted by DataLend, the only that, but the pandemic has undoubtedly market data arm of EquiLend, the market Securities Finance Americas Guide 2020 4 SECURITIES FINANCE still generated $3.89 billion in the first six months of the year. In the Americas, revenues increased 5.6% when compared to the same period in 2019, which was the second best year on record in terms of revenue, with 2018 being the only year to return higher numbers. Highlighting some of the key figures seen in the Americas, Nancy Allen, global product owners of DataLend, says: “In the Americas, while equity loan values declined 14% year over year, average fees increased by 22% driven by a number of special names, including four of the top-five revenue- generating securities and a number of Covid- related specials.” The positive figures seen in the Americas should come as no surprise, as it was one of the few geographical regions to not impose short selling bans in response to the Covid-19 pandemic, unlike a number of countries across Europe, the Middle East and Africa (Emea) and Asia Pacific. In those regions, securities lending revenues were down 33% and 25%, respectively. In the Americas, while While there was a significant drop-off in equity loan values declined demand during the initial outbreak of the 14% year over year, average Covid-19 pandemic, Bill Kelly, managing fees increased by 22% driven director and global head of agency securities by a number of special names, finance for BNY Mellon, notes that the New including four of the top-five York-based bank’s activity was up both year-on-year and sequentially. He says: “As revenue-generating securities an industry, securities lending was down in and a number of Covid-related the first quarter, but our activity has been up specials. both year-on-year and sequentially, which I – Nancy Allen, DataLend think reflects a couple of things; that there was demand for High Quality Liquid Assets (HQLA) such as sovereign assets and dollar hospitality and airlines. Nick Davis, executive funding; and the existence of strong demand director of agency securities lending at JP for exchange-traded funds.” Morgan, echoes the comments from Kelly, However, as the pandemic persevered as he notes that March “saw a divergence” and broader markets were impacted, in hedge fund activity as quant funds were Kelly highlights that demand has shifted deleveraged due to market volatility and towards “distressed sectors” like consumer global macro funds “fared better”. He adds: discretionary services such as tourism, “Specials started to increase in specific 5 Securities Finance Americas Guide 2020 SECURITIES FINANCE sectors such as airlines and travel, and throughout the pandemic and, in a number of fixed income saw increased demand in US cases, the level of communication has been Treasuries due to money market fund demand ramped up. and overall dislocations due to volatility and Kelly explains: “I think what we what we increased specials in emerging markets, as an institution – and the wider securities sovereigns and the corporate space.” finance industry – have done, is proactively The pandemic has encouraged agent lenders reach out to and engage with clients. As to use alternative methods of communication we pivoted away from our primary office with their beneficial owner clients, whether locations to business continuity sites and that be using platforms such as Zoom to then into having 100% of our staff work from video-call or making the most of trading home, we quickly recognised that maintaining platforms to execute a higher volume of strong communication would be absolutely trades. However, what remains paramount, essential, both internally and externally. Once is that the communication between agent we got settled towards the end of March, we lenders and their clients has been consistent were constantly communicating to our clients about market events and market trends, both from a risk management perspective and to simply keep them apprised of what was occurring in the lending markets.” MUFG Investor Services has adopted a similar approach, states Tim Smollen, global head of securities lending solutions. He notes that the Japanese bank has increased its dialogue with individual clients during this time of elevated concern and quickly adopted video conferencing. Smollen says: “I still like being able to see clients on screen and I also think it gives them extra assurance when they see their securities lending coverage team altogether, motivated and coordinated.” BNY Mellon’s Kelly highlights that the beneficial owner clients’ response to how