GSL 009

GSL ISSUE 09 Q3 2010
GSL |
MARKETS
Korea/Taiwan, Australia
Global
Securities INDUSTRY INSIGHT
Delta One, Eurozone
Lending
PROFILE
James Slater
GSL ISSUE 09 Q3 2010
The Central Question

Cracking the CCP code
Plus: US Regulation update Annual Membership

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QUICK QUARTERLY VIEW
South Korea
Chris Jaynes and Taiwan Jean-Baptiste
Rupert Perry Gaudemet
Brian Lamb
US
Regulators
James Slater
Lend an ear
This GSL comes at the end regulation - an area where the last decade of eSecLending,
of perhaps the busiest time in CCP again reared its head. on the firm's 10th birthday.
the magazine's history, with five There is an Asia-Pacific flavour Jean-Baptiste Gaudemet of
GSL Summits and the ISLA to the markets section as Cherry Sophis provides expert analysis
conference in Berlin having passed Reynard looks at the development on the role of technology
since the last magazine - not to of South Korea and Taiwan over in Delta One and there are
mention the inaugural Securities the last 10 years and Giselle highlights of editor-in-chief
Lending Industry Awards. Awad of eSecLending gives us Roy Zimmerhansl interviewing
Of course the industry has been a rundown of the current state Pirum CEO Rupert Perry at
just as busy during this time, and of the Australian market. the recent ISLA conference.
news has been coming thick and fast. We have also continued our Of course, we also have photos
From a seemingly non-stop series mission to give the repo market and information from all the recent
of people moves (see News for more of an airing within the press, GSL Summits and the Securities
full details) to new start up firms as Ugo Bonaugurio provides an Lending Industry Awards.
and continuing concerns around outline of the European repo GSL would again like to
regulation, it seems that the rest of market and we canvas opinion in congratulate all of the winners
2010 will continue to be interesting. the US of the work done by the and highly commended
This quarter sees GSL take an Tri-Party Repurchase Agreement firms from the Awards.
in-depth look at one of the hottest Infrastructure Reform Task Force. We are already looking
debates in securities lending right Elsewhere in the magazine we forward to the 2011 Awards
now, namely central counterparty, profile CIBC Mellon's James - we hope you are too. Z
while John Sandman looks at Slater ahead of his move to
noises in the USA surrounding BNY Mellon and we look at Craig McGlashan, deputy editor
2 | Global Securities Lending Magazine | 2010

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©2010 STATE STREET CORPORATION 10-SGM05150710

CONTENTS
News
Contents 6 | News
36 | Operations
New developments
Top industry stories
Repo
People
GSL |
Global
Securities
Lending 38 | US Tri-party repo
12 | Executive Profile Reform on the agenda
James Slater
Editor-in-Chief
Roy Zimmerhansl
roy.zimmerhansl@2i.tv
42 | European repo
Deputy Editor Securities Lending The state of the market
Craig McGlashan
craig.mcglashan@2i.tv
14 | CCP
“This rule will in
Contributors An analysis of the issues principle prevent
Cherry Reynard
Markets securities
John Sandman
Ugo Bonaugurio lenders such
Front Cover
46 | Korea and Taiwan as custodians
A comparison
Morgan Miller 18 | US Regulations from double
What are regulators
planning? dipping—
GSL is part of Media charging the
2
50 | Australia same firm for

22 | EU Short Selling
The latest developments asset servicing
Head of Sales
Patricia De La Grange
Comment on proposed and advisor
and enacted regulation
services"
Account Managers
Eradat Munshi Events
Who said this?
Chief Technology Officer 26 | Market Movements Find out, page 19
Peter Ainsworth 54 | Awards
Overview of the second Review of the inaugural
quarter Securities Lending
Managing Director
Jon Hewson Industry Awards
CEO
Mark Latham 28 | eSecLending 56 | GSL Summits
Celebrating 10 years A rundown of the last five
2i UK, 16-17 Little Portland Street,
London W1W 8BP, UK summits
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32 | Delta One 62 | Directory
All rights reserved.
No part of this publication may be How technology can help GSL Directory
reproduced, in whole or in part,
without prior written permission from
the publishers.
ISSN 1759-0728 Printed in the UK

NEWS
News Round-up Top industry stories at deadline.

For daily updates go to www.gsl.tv
the lawsuit as “meritless”. president, product and Nomura’s London-based
client service, global prime services business.
Nicholas Bonn, who securities lending, and
was named interim Robert Chiuch, vice Moving in the other
head of State Street’s president, head of trading, direction is William Foley,
securities finance business global securities lending, who leaves his role as
Economou, has been given were to become co-heads senior sales executive for
the job on a permanent of global securities lending agency securities lending
basis. at the bank. to become director of
securities lending sales at
SecFinex CEO Peter Slater will continue to RBC Dexia.
Fenichel and managing provide strategic direction
director Robert to CIBC Mellon’s Previously, Foley was
Reynolds both left the securities lending business. global head of securities
firm to “pursue other finance at Deutsche Bank’s
People Moves opportunities”, according He commented: “I look custody division and has
to the company. forward to working in also worked at ABN Amro
strategic partnership as a senior sales trader.
Peter Economou left
Both men joined the firm with Rob and Robert as Foley will start his new
his position as head of
in 2007 and have been they continue to deliver role at RBC Dexia on 6th
securities finance at
part of SecFinex’s drive exceptional service and September 2010.
State Street to join the
to encourage firms on to performance to CIBC
management committee
its central counterparty Mellon's securities lending Jane Karczewski has been
of Craig Starble’s new
(CCP) platform. clients.” appointed as a managing
venture Premier Global
director and head of
Securities Lending. James Slater moved Former Barclays Capital institutional supply and
to BNY Mellon Asset Prime Services head of marketing at Citi Prime
Economou was joined in
Servicing to take up a sales for EMEA Brian Finance, after leaving
the switch by eight other
newly created role of Bisesi has joined J.P. Deutsche Bank.
State Street employees:
managing director and Morgan to head up its
Paul Lynch, Suzanne
COO for global securities EMEA prime brokerage Karczewski will be charged
Lee, Michael McAuley,
lending. team, where he will be with leading the firm’s
William Locke, Oberon
joined by two new hires. drive to expand its client
Knapp, Larry Albaugh and Slater moves from his role base of European asset
Michael Landolfi. as senior vice president at Bisesi will take charge managers.
CIBC Mellon, the joint of the EMEA sales and
State Street has now
project between CIBC and marketing team and will Karczewski will start her
launched a lawsuit against
BNY Mellon, where he join the EMEA Prime role in October and will
Economou, Lynch and
had been since its creation Brokerage Management report to Ian Maynard,
Starble – himself former
in 1996. His new role will Committee. A J.P. Morgan global head of trading for
head of securities finance
see him report to Kathy spokesperson said the prime finance.
at the bank.
Rulong, executive director move was part of a
of global securities lending strategic plan to grow the Deutsche Bank also made
In a statement, State
at BNY Mellon and prime brokerage business some appointments of
Street it "believes that
will involve creating the and extend the firm’s its own, with Rebecca
these former employees
strategic direction for the footprint in EMEA. Walsh being appointed to
breached their obligations
firms securities financing the position of director,
to State Street, and we
business. Stephane Marchand and global sales & relationship
intend to protect the
Dominic Rieb-Smith management within its
company against this
After the announcement, will join Bisesi’s team as newly restructured Direct
wrongdoing".
CIBC Mellon said that London-based executive Securities Services (DSS)
Rob Ferguson, vice directors. Both move from business.
Premier Global described

NEWS
Walsh will have Goldman Sachs and Grace O’Connor, currently global Wachovia Global Securities
responsibility for finding Financial respectively. head of financing and Lending appointed Darren
new business within the markets products. Ansell, Lori Buffum and
clearing community across Both positions will be Michelle Riffelmacher
the 32 markets in which New York based. Shapiro’s Berliand oversaw J.P. to business development
DSS operates. role will involve helping Morgan’s prime brokerage, roles.
EFX Prime’s clients futures & options and
In addition, Anthony with operational and OTC clearing and broker Ansell has been appointed
Graffeo and Sunita infrastructure issues. dealer services and was senior vice president for
Vaswani joining the Group in charge of combining EMEA and moves from
Technology and Operations Mednick will focus on Bear Stearns’ business Citi, where he was director
division within the bank’s boosting EFX Prime’s into the company. An of securities finance.
Global Prime Finance. infrastructure to partner internal memo said that
with active trading Berliand had helped the Buffum has been named
Graffeo and Vaswani strategies. business expand its client regional sales executive and
both joined from J.P. base, product offering and moves from the defined
Morgan, where they were Former Ferox Capital leadership positions in “all contribution institutional
technology group manager Management CEO Jack of these businesses”. sales team at Wells Capital
for prime brokerage and Inglis joined the European Management.
clearing services and a user operations of Barclays Citi Global Transaction
experience group manager Capital Prime Services, Services announced that Riffelmacher has been
respectively. becoming managing David Martocci has been made marketing manager
director, head of European appointed managing and will be responsible for
eSecLending appointed prime services distribution. director and global product marketing strategy.
former Data Explorers manager of third-party
head of consulting Ed Inglis’s role will be securities lending and Roger Liddell, CEO
Oliver as senior vice London-based and business development of LCH.Clearnet, has
president. will involve overseeing within its securities and announced that he will
BarCap’s European prime fund services unit. retire from his role in 2011
Oliver has 23 years of services distribution after five in charge of the
experience in financial business, including equity Martocci’s new role will firm.
services, including a origination and financing see him take charge of
number of positions at sales, fixed income development, management During his tenure, Liddell
Northern Trust which origination and OTC and sales for the bank’s oversaw a number of
focused on providing clearing. third-party securities events, including the
securities lending services lending offering. He will realignment of LCH.
to the firm’s custody Scotia Capital appointed also take a seat on Citi Clearnet’s shareholder base
clients. John Stracquadanio as co- Global Securities Finance’s and its growth in the OTC
head of the bank’s global Management Committee. clearing market.
Brown Brothers Harriman prime brokerage business,
(BBH) announced the where he will work Tonia Noschese was Sean Westley, formerly
addition of four new senior alongside Patrick Blessing. appointed business an executive director in
executives to its EMEA development manager at UBS’s Prime Services
securities lending team. Both men will be in Pirum Systems, moving division, joined technology
charge of the prime from Deutsche Bank, firm ConvergEx Group’s
David Lewis, Jacqueline brokerage strategy, with where she held the position boutique prime brokerage
Waller, Céline Emond and Stracquadanio focusing of securities lending business NorthPoint
Samantha Peppiatt have all on global product relationship manager. Trading Partners as a
joined BBH and will have development and Blessing senior vice president of
a focus on relationship looking after global client Noschese has been in the sales.
management and business development. securities finance industry
development in the region. for more than five years Prior to his role at UBS,
Richard Berliand will retire and held a number of roles Westley also worked within
EFX Prime Services has as head of J.P. Morgan’s at Morgan Stanley prior to the prime brokerage
announced the arrival of Prime Services business her time at Deutsche Bank. businesses of Credit Suisse
Jonathan Shapiro and Gary at the end of year and will and Goldman Sachs.
Mednick, who join from be replaced by Sandie
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NEWS
The US Securities and Securities Lending

Securities Lending Technology
Exchange Commission Agreement (GMSLA).
(SEC) has suggested that
Wells Fargo is facing beneficial owners should According to the 4sight Financial Software
another trial over its receive earlier notification organisations, the signed four new clients
securities lending of upcoming shareholder decision was taken to to its securities finance
programme, following the meetings. hold joint workshops software solution, bringing
announcement of a USD40 as both agreements are the company’s customer
million lawsuit by Sarasota In a concept release on the often looked after by base to 30 financial
County against the bank. US Proxy System, the SEC the same legal teams institutions and boosting its
outlined concerns that, within banks, meaning year-on-year sales revenue
Earlier, Wells Fargo was as shareholder meeting a full understanding of by 150%.
ordered to pay USD30.1 information is typically not both repo and securities
million to four non-profit mailed until after the record lending agreements can be The four new clients will
organisations in Minnesota date, some institutional obtained. utilise 4sight’s Securities
over similar claims that lenders who engage in Lending and Borrowing,
it failed to adhere to securities lending may not ISLA also added its voice Repo and Collateral
its conservative cash receive this information in to calls for a harmonised Management products.
reinvestment policy. time to decide whether to approach to short selling
make a recall. regulation, as a number of As a result of the growth
More than 200 executives country's take unilateral in its client base, 4sight
attended the 2nd Annual action on the practice. has been looking to hire a
East Coast Beneficial Repo number of new staff.
Owners’ Securities Lending Ernst & Young (E&Y) is
Summit in June, organisers facing an investigation by BondLend launched a
IMN announced. The Tri-Party Repurchase part of the UK’s Financial new fixed-income lending
Agreement (Repo) Reporting Council (FRC) and repo platform which
The next IMN conference, Infrastructure Reform over its auditing of the includes straight-through
the 15th Anniversary Task Force released its failed bank Lehman processing and automated
European Summit, will be final report, but in a Brothers. post-trade services.
held in London on 20-21 white paper based on the
September, while IMN’s recommendations the E&Y came in for criticism The firm said the system
flagship international Federal Reserve Bank over concerns that it will allow participatory
summit will have a change of New York said that it had failed to notice this firms to free up resources
of date for the first time would be required to take practice in its auditing while the post-trade
in 17 years as the 17th “additional actions, as of the bank, and in April services will boost efficiency
Annual Beneficial Owners’ necessary”. the accountancy firm was while reducing risk.
International Securities added to a lawsuit filed
Lending Repo Summit The report was launched in against Lehman executives BNY Mellon launched
moves to February 13-16, the wake of the credit crisis and underwriters. a new securities lending
2011. and aims to avoid a repeat auction technology, labelled
of the contagion that spread In related news, AIG, i-BID ADVANTAGE,
State Street will discontinue from one troubled party to Citi and Bank of America which will be delivered via
the securities lending another within the USD1.7 revealed that they classified the firm’s i-BID auction
programmes of its Irish trillion market. billions of dollars of platform.
UCITS fixed-income repos as sales, a practice
funds (State Street Global The International Securities that first came to light Using the new system,
advisors Fixed Income Lending Association (ISLA) in an investigation into BNY Mellon’s securities
Plc), the company revealed and the International the collapse of Lehman lending clients will be
in a stock exchange Capital Market Association Brothers. able to auction their
announcement. (ICMA) have announced own securities directly to
plans to hold joint public AIG and Citi revealed the borrowers, which the firm
The announcement said workshops on the Global news in letters to the US said would allow clients to
that the decision was taken Master Repurchase Securities and Exchange understand how borrowers
“in the best interests of Agreement (GMRA) Commission (SEC), both set values on assets against
shareholders”. and the Global Master dated 13th April. various collateral types. Z

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EXECUTIVE PROFILE
James Slater, CIBC Mellon

Ahead of his move to BNY Mellon,
James Slater, senior vice president,
capital markets at CIBC Mellon, talks
to Craig McGlashan about his career
so far and outlook for the future
James Slater stresses that “I was monitoring
relationships are the most important margin accounts and
thing when it comes to the securities Wood Gundy at the
lending business, regardless of time had a particular
the leaps and bounds in terms of branch that had
technology and complexity that he has a number of high
seen during his time in the industry. powered financial
“Relationships are as important advisers with more
as ever,” he says. “The other thing sophisticated strategies
is structure – I’m very structural than you typically
in my thinking and I think all see in that business.
great companies have a culture of It had a number of
discipline. At CIBC Mellon we’ve clients doing long/
been very focused around those short, convertible
two areas, in terms of how we get arbitrage and options “So I started in this business on
things done internally and how we strategies,” he explains. “There the borrower side and ran a desk
manage relationships externally. weren’t very many people in the group from that perspective and that served
But it’s not just clients – I’ve always that had an aptitude to margin the me very well over the years, having
had a philosophy that you treat your accounts because a lot of it had to be worked both sides of the business,” he
stakeholders, your vendors and your done manually back then; they didn’t adds.
clients with the same level of respect have the systems to do it. After moving to the asset
and appreciation.” “I’d taken a couple of courses, servicing business at CIBC World
Slater’s formative years as a including an options and futures Markets in the mid-1990s, Slater’s
businessman were also built around course, and that gave me the tools to entrepreneurial background was again
relationships. He talks of coming beneficial when the joint venture
from a family of entrepreneurs, where “I’d say the business between CIBC and BNY Mellon –
at family get-togethers business was CIBC Mellon – came into existence.
always the key conversation around
is experiencing “That was an exciting and
the dinner table. “When I was growing unprecedented times” interesting time for me,” he explains.
up in high school I spent my evenings “When we were looking to start
and weekends working in these small do that job. Part of it was phoning up that business I was very much
businesses,” he adds. “So that gave me the securities lending desk to confirm involved from a strategy perspective
a good grounding in understanding that they could borrow the shares, – looking at the options to grow the
the values of hard work and also a sometimes getting information on the business and what the optimal way
very strong sense of ownership and conversion ratio for convertible bonds, was to do that. “We looked at several
accountability.” that sort of thing.” different opportunities including
When Slater started in the financial After “asking a lot of questions”, selling the business, reinvesting the
services industry at Wood Gundy Slater caught the attention of the business or doing a joint venture and
[later to be bought by CIBC], it was trading floor and soon moved from ultimately we went for the latter.
the lack of automation at that time there to a securities finance desk, then “It’s been exciting to be in on
that perhaps helped him climb the within a few years became manger of that ground floor and being in this
first few rungs of the ladder. a desk. environment has been very much an

EXECUTIVE PROFILE
entrepreneurial culture in growing the “We’ve seen challenges, hardship He says: “Being one of the original
business.” – but also I think to an extent now people in the joint venture, I have not
Of course, starting any new business great opportunity. We’ve seen some only a tremendous attachment to the
from scratch is always challenging, major players disappear over the last business but most importantly to the
and Slater’s experience at CIBC few years, we’ve got game changers people here. I’ve helped bring in a lot
Mellon was no different. trying to break into our market of the staff within the firm and I have
“A lot of the challenges were and change it, we’ve got regulators a lot of close personal friends here.
in the early years, building the increasingly focusing on our activities, “The team here is very strong with
infrastructure,” he says. “As a new risk appetites are being re-evaluated, Rob Ferguson and Rob Chiuch taking
organisation we didn’t have an HR transparency requirements are over from me. I’ve worked with each
department, we didn’t have a finance on the rise. I’d say the business is of them for around 15 years, they
department, so there was a lot of experiencing unprecedented times.” know the business extremely well and
infrastructure that we had to build. How does Slater expect to meet they’re going to do a great job.”
“My role, as part of the these challenges? While being part of the birth and
management team, gave me a lot “I think we’re at a strategic growth of that business may well be
of exposure to components of the inflexion point in the maturation of Slater’s proudest achievement, what
business beyond securities lending. our industry and I think there are specific event about that time stands
I was very much involved with some pretty deep questions about out?
establishing the infrastructure for where things go from here. The rate “One of the things that I am
the business so it was a tremendous of external change has accelerated certainly proud of is how we’ve
opportunity in giving me exposure to significantly. The pace of change is worked with the regulators and
many different facets of managing a the central bank here in Canada,”
company.” “From a strategy he explains. “In 2001 we were
Time moves on however, and Slater instrumental in getting approval
will shortly be moving to BNY Mellon perspective, you need for Canadian mutual funds to start
in the newly created role of COO for to have a close eye on lending - prior to that regulations
global securities lending – a move that where things are going restricted mutual funds from
has left him, in a word, “pumped”. participating.
“I can’t tell you how excited I in terms of tax and “The team and I here at CIBC
am about joining BNY Mellon, it’s regulation. You must Mellon led the early discussions
a fabulous organisation,” he adds. be able to identify how with the regulators to get that on
Again, relationships have come to play their agenda. I think we’ve carried
a part in Slater’s career. “Through that’s going to affect through from that point, working very
the joint venture I’ve worked with a your business and closely with the regulators and the
number of the people I’ll be working adjust your strategies central bank to help foster a strong
with in my new role for many years understanding and appreciation for
so there’s been a natural relationship accordingly” the value of securities lending to our
there. I think that will make the whole capital markets.
transition much easier.” so great that if you want things to “I think generally we have a
So what does Slater hope to achieve stay the same you have to change. It’s very good and strong environment
in his new role? “I want to build on about being open and transparent, in Canada for securities lending
the strengths that BNY Mellon has,” about being adaptive. where it’s viewed very favourably by
he says. “They are one of the largest “From a strategy perspective, you beneficial owners. From a legislative
players in the market and they have need to have a close eye on where and regulatory perspective it’s a well-
tremendous scope and capabilities so things are going in terms of tax accepted product.”
I want to build on all the good work and regulation. You must be able to In his new role, Slater will have a
that they’ve been doing and hopefully identify how that’s going to affect your wider global scope, with responsibility
bring some new things to the table business and adjust your strategies for BNY Mellon’s trading businesses
that I was able to do at CIBC accordingly.” across the globe. With securities
Mellon.” Slater’s own outlook will continue lending under closer scrutiny in some
Of course, Slater’s change in to have an influence on CIBC of these markets than in Slater’s native
job comes at the same time as Mellon’s future, as despite his switch Canada, it may just be that Slater’s
the industry itself is facing many he will still provide strategic direction focus on relationships could pay off
challenges. How does he see these to the Canadian firm, a situation that for BNY Mellon and the industry as a
playing out? “could not be better”. whole. Z

CENTRAL COUNTERPARTY
The Central Roy Zimmerhansl examines the

main questions surrounding the
Question adoption of CCPs by the market

The securities lending business is the world’s largest equity principal borrowers and hedge funds?
at a critical stage in its development. derivatives clearing organisation. What are the requirements
The industry can rightly be proud That produce was targeted at for change that will lead to
of how it has weathered the twin US options market makers and achieving those benefits?
storms of the credit crisis and the it wasn’t until 2008 that CCP Are trading platforms and CCPs
Lehman default. Yet all is not rosy. became a mainstream discussion inextricably linked or can bilateral
The demand side of the equation point for the industry. relationships become part of the mix?
is well below the values posted in Two combinations of trading The lack of published data on
2007 – with balances estimated platforms and CCPs were announced CCP utilisation is without doubt
at half of the peak. Revenues in 2008 and went live in 2009. an inhibiting factor for non-
for lenders engaged in cash Quadriserv announced a link
reinvestment programmes were with OCC and SecFinex and “The agents and
initially buoyed by historically high LCH.Clearnet revealed their beneficial owners
credit spreads in 2008 and 2009. plans for a securities lending CCP
Last year also saw unprecedented for the EuroNext markets.
are still waiting to
demand and high fees for many Met with a combination of be convinced of the
stocks previously considered surprise and scepticism, this birth benefits. There can
“general collateral” or widely has also added to the confusion of
available and low priced. where the lines are drawn between
be only one objective
This year declining spreads, trading platform and CCP. for this group: optimal
coupled with a return to historical Today people often confuse the revenue generation
trend pricing have conspired with two, for example describing CCPs
continuing subdued demand to as bringing market transparency.
within an acceptable risk
reduce returns for many lenders. Let’s be clear, trading platforms profile”
So the industry finds itself at a help bring price discovery and
crossroads. Prime brokers find the improve transparency, CCPs don’t. participants considering whether
pot of fees available from hedge And while we are clearing to investigate joining a CCP.
funds is still substantial, but smaller up myths, the question often The OCC does publish data for
than anticipated at the end of 2009. gets asked: “When will the the volume of securities lending
Despite this, competition for securities lending business move data processed through their system
hedge fund business is keener to a CCP environment?” – some 1,200 transactions per day
than ever with a new and more Easy answer – it is already with USD12 billion in outstanding
level playing field amongst there, it’s more a question of contracts – but this combines both
prime brokers of all types. proportion of the business. the Stock Loan Program and the
It will never be 100% CCP Quadriserv (AQS) volumes.
“The lack of published cleared, but it is equally likely that Yet all new products are
it will never return to zero either. launched with low volumes, get
data on CCP utilisation However, at the recent tested by the users and prospects
is without doubt an International Securities Lending and develop over time.
inhibiting factor for non- Association conference in Berlin, All firms and service providers
the audience vote during the have experienced this and any other
participants considering CCP panel session revealed the expectation for CCP would be either
whether to investigate opinion that CCP for securities naive or purposefully negative.
joining a CCP” lending was inevitable. This year we have seen a
Since CCPs are a reality and third CCP enter the fray for a
Lenders are finding it difficult to the first anniversary of both CCP number of European markets
balance the twin objectives of revenue launches has now passed, it’s a in the form of SIX x-clear.
optimisation and risk reduction in good time to reflect on progress. There is a fourth on the horizon, as
a market where the pickings are There is still confusion and Eurex has been working with market
slim compared to recent years. uncertainty, but there is still a lack participants to develop another
Enter the central counterparty of information as to what the CCP CCP targeted for launch next year.
(CCP). The first central really means for market participants. The fact that in less than 12
counterparty for securities lending What are the benefits for each of months from now there will be
was launched in 1993 by the the market segments – beneficial multiple competitors fighting for a
Options Clearing Corporation, owners, agent intermediaries, space that at the moment is lacking

critical mass is a concern for some. for securities lending? Just balance sheet, securities lending
The agents and beneficial being different to the current would never return to its previous
owners are still waiting to be market practice is unlikely glory. Transactions will migrate
convinced of the benefits. to be a sufficient reason. to more efficient structures.
There can be only one The demand side of the business Yet, there are valid issues – none of
objective for this group: optimal has spent the past two years re- the CCP models in operation today
revenue generation within an examining the products that are perfectly formed. Enhancements
acceptable risk profile. they offer to hedge funds. are required across the board.
The ability for lenders to be able New alignments, partnerships, Securities lending doesn’t fit
to reach counterparties where no mini-primes and alternative neatly into an existing CCP process
relationship exists or credit limits structures have come to the fore as and changes must be made.
have been reached shows the well as new entrants into the market. CCPs that refuse to take action
potential for revenue enhancement. Surely the benefits of capital will be left by the wayside and are
Turning to risk, central usage reductions and balance an unnecessary distraction from
counterparties are the best-loved risk sheet benefits are enough to drive the goal of improving the market.
reduction solution of the regulators volumes to the CCP for this group. Where we stand at the second
that ultimately have the responsibility Day to day competitive anniversary depends on factors
for the efficient and ongoing pressures may have shifted the within the industry and from without.
operation of the capital markets. focus for many firms. As future In any case, trade associations
Are the naysayers challenging demand for borrowing returns play a pivotal role in helping
the judgement of the regulators? the resources that are voraciously identify and shape the future
Indeed, the approach of consumed by this business will for CCPs in this business.
the regulators is: “We expect force firms to embrace CCP. It is clear that regulators prefer this
everything to go through CCP The alternative view expressed model for other businesses, and while
unless you give us a compelling at a roundtable session at the they believe securities lending is a
reason why it shouldn’t.” ISLA conference was that without sound practice, that doesn’t mean it
What is the compelling reason more efficient use of capital and is immune to further inspection. Z
that services the entire trading community. We are

From GSL.tv pleased that our first full year operation has affirmed
these values, as underscored by robust growth
and the achievement of all of our major strategic
Quadriserv has revealed the progress made by its priorities.”
AQS securities lending platform after one year of the Another goal of AQS was to support sponsored
market’s operation and has also announced its plans access for direct borrowers and lenders in a regulated
for the rest of the year. securities lending market. Quadriserv said this
According to the firm, AQS has seen “consistent had been successfully completed and that it would
growth” in terms of membership and transactions, continue to on-board the sponsored access pipeline
with 41 approved member firms, average general over the rest of 2010.
collateral order size around USD3.2 million “Expansion of the sponsored access client base,
and average hard-to-borrow order size around coupled with the demonstrated success of the core
USD650,000. AQS technology and operational infrastructure,
In addition, the pool of securities which can be has allowed us to preserve a business model that is
cleared through AQS now amounts to around 93% of progressive, responsive, flexible and inclusive of key
all US equity symbols on loan. market participants,” added Depetris. “To that end
Quadriserv also said it had seen “strong we have invested in the development and introduction
institutional support” during the first year of AQS of products that speak clearly to the continuing trend
from all players in the market. AQS has orders in toward centralised clearing, transacting and reporting
95% of the S&P 500 and 70% of the Russell 3000. in the securities lending industry.”
Gregory Depetris, co-founder of Quadriserv, Other plans for the rest of 2010 include creating
said: "Since inception, AQS has been steadfast in dealer-centric products which will leverage existing
its commitment to a highly scalable, robust and AQS infrastructure and introducing AQS Market
institutional quality market for securities lending Data products to a wider audience. Z

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REGULATION
Need to Know
John Sandman investigates what regulators Stateside want to find out
from securities lenders - and what their plans are for the industry
The GSL New York

Securities Lending
Summit, 20th May
Steve Pesek,
seated, far right
The New York Federal Reserve Now the horizons have lending market is insulated from
Bank does not regulate securities been pushed further into market events or that clients will
lending per se. It does, however, the distance. Pesek, who was continue with the status quo
regulate the participants in the speaking for himself rather than is most certainly in denial.”
market, the agent lenders, and they Fed, predicted that supervision This is a $1.3 trillion USD
do examinations of the institutions would be more substantive. market, with roughly 70 percent
they regulate, including their Without mentioning specific going to beneficial owners and
securities lending activities. timetables, he said: “You could see 30 percent to agent lenders.
In the post-September 2008 us once a year, twice a year, or you Regulators have, as Pesek put
landscape, those examinations are could see us quarterly. If we find it, taken steps to become “better
likely to take on added importance an area of interest that we think educated about who sec lenders
and become more robust. requires more review, we do what are and what they do”,
“Back in 2008 our view of the we’re calling a targeted examination,” starting with the Fed
future was (based on) what’s where the scope of the exam will itself, which formed
happening tomorrow, what’s depend on when they think they the Securities
happening next week,” said New have obtained enough information. Outreach
York Fed supervising examiner “When I go back to work, I
Steven Pesek at the Global want to regulate from a position
Securities Lending conference of knowledge and not based on
in New York last May. what I think ought to happen.”
“When we contacted institutions, As Denise Valentine, an analyst
the question would be about for Boston-based consultancy the
what happened this afternoon Aite Group wrote in her May 2009
and what’s happening tomorrow report, Securities Lending, Age of
morning. Then, we were looking Enlightenment? - “Any participant
for immediate information.” who believes that the securities

REGULATION
programme in the autumn of 2008. prevent securities lenders such as fill a knowledge or skill gap.”
“By the year-end 2008, the custodians from double dipping— He adds: “We understand that
five groups we approached charging the same firm for asset business models change over time.
agreed to participate." servicing and advisor services,” We simply want to make sure bank
Beneficial owners are represented explains Mayiz Habball, New management effectively identifies,
by ICI, and the Securities York-based head of securities and understands and manages any
Lenders Consortium. Lenders are investment at Celent, a financial changes to its risk profile.”
represented by the Risk Management services consultancy. “Market Apart from any new scrutiny
Association (RMA). Borrowers participants need to study the new regulators bring to bear, managing
are represented by the Managed law and evaluate their options.” risk in the future will almost surely be
Funds Association (MFA). Other Above all, Pesek said that the Fed a job for new technologies. Migrating
participants include the Securities looks at a firm’s business model as to straight-through processing will,
and Exchange Commission (SEC), a key gateway to risk assessment. over the long haul, be essential
the Office of the Comptroller of the “We maintain an awareness of a to any risk mitigation strategy.
Currency (OCC), the Department bank’s activities through periodic “The most exciting aspect of the
of Labor and the Federal Reserve meetings with securities lending market is the
Banks of Boston and Chicago. emergence of electronic platforms,”
The securities lending says Valentine. “Some say it has
issues Pesek identified been tried before and did not
for 2010 include the attract liquidity. The past
trade-off around does not reflect today.
floating vs. stable Transparency, ease of
NAV, intrinsic use, direct access -
value vs. collateral these are today’s
reinvestment front office
income, separate buzz words.”
vs. comingled Brian Lamb,
accounts, the CEO of EquiLend
use of non-cash also thinks risk
collateral and management
changes to the and automation
bankruptcy were synonymous.
code. “We don’t have a risk
management module,” he says.
“What we have are automated
bank management,” says Pesek solutions that eliminate the threats
in a post-conference interview. posed by manual processing.”
“One area of focus is its business If cash was king before the 2008
model. This can be bank-wide credit freeze, its use as the standard
or specific to a business line. for collateral management has, if
“For example, if we see that a anything, been reinforced since
business line was getting 60% of its then. Still, non-cash collateral
revenue from source A, and now that model continues to be acceptable
Pesek also cited the source only contributes 5% while in the European markets.
Volker rule, part of the source B is expected to contribute Will this bifurcated collateral
financial reform bill—the 60% going forward, we’re interested management practice continue, or
Restoring American Financial in knowing if the changes in revenue will the trend be toward cash?
Stability Act of 2010—that contribution significantly changes “I think what will change is
passed the US Senate in May. the risk model, and the inherent risk that there will be more focus on
Better known for the limits it profile within the business model. collateral management, regardless
places on proprietary trading, "If the risk profile does change, of the type,” says Lamb. “For
it could also limit the activities we want to know if managing example, there may be more focus
of banks providing securities the risks fall within the current on cash as collateral in terms of
lending and related services. strength of the bank, or is one what investment guidelines might
“This rule will in principle that requires management to be. People will be more focused on

REGULATION
how to manage government debt as exchange platform. We’re not

collateral and margin around that.” exclusive to AQS. If someone asks
Will central counterparties us to be the central counterparty
become key to securities lending? for a stock loan exchange we’ll look
Or will any difficulty they have in at that and determine if it’s a good
capturing liquidity hold them back? fit. But we’re not out to own the
“I think you could ask the Options stock loan world. It’s not incumbent
Clearing Corp that question,” upon us to provide liquidity.”
says Lamb. “They’ve operated a The Fed’s Pesek noted that they
central counterparty in the SBL were in constant contact with
market for 17 years and they still other regulators, but gaps abound
don’t have much liquidity.” between national regulators.
He added that while it was difficult Should fragmented jurisdictional
to identify the barriers to liquidity regimes be normalised? Could
aggregation and there is support for something that approaches a
a CCP, “I think there’s still strong global regulatory regime be
support for a bilateral model” . devised, or will there always be
The OCC’s vice president of division across national lines?
member services, Joe Pelligrini, who “We’re a global platform and
heads up the firm’s securities lending we’ve got clients around the “I think what will
services, suggested that there was world 24 hours a day, six and a change is that there
some confusion about the role of half days a week,” says Lamb.
the OCC and utilities in general. “We’re all about creating standards
will be more focus on
“We have a securities lending for the global market for all asset collateral management,
programme internally and we classes. Having said that, there will regardless of the type”
also clear for AQS (Automated always be local rules, customs and
Equity Finance Markets). mores that need to co-exist and
We do this as a service to our have to be global standards.” Z Brian Lamb, EquiLend
clearing customers,” he said. See full coverage of the
“We’re not a securities lending New York Summit on GSL.tv
From GSL.tv
The US Securities and Exchange Commission (SEC) has suggested that beneficial owners should receive
earlier notification of upcoming shareholder meetings.
In a concept release on the US Proxy System, part of the first major SEC review of the system in almost 30
years, the SEC outlined concerns that, as shareholder meeting information is typically not mailed until after
the record date, some institutional lenders who engage in securities lending may not receive this information
in time to decide whether to make a recall.
In an open meeting of the SEC which debated the release, chairman Mary Schapiro commented: “Rather
than passing judgment on the merits of securities lending, this release examines the relatively narrow question
of whether the lenders of securities need information sooner about the content of upcoming shareholder
meetings than they now generally receive it.
“Such earlier notification could allow an investor to decide whether to recall their shares and regain their
right to vote these shares.”
The release discussed two potential solutions to the problem. The first looked at the example of the NYSE,
which requires issuers to provide notice of record and meeting dates at least 10 days prior to the record date,
where possible, but this information is not then disseminated to the public.
Instead, the SEC suggested that it could ask stock exchanges to require public dissemination of notices from
issuers in advance of the record date. Alternatively, issuers themselves could be asked to disclose agendas via
other public means, such as filing reports on Form 8-K. Z

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EU SHORT SELLING
EU Short Selling Regulation

legitimate or political activism?
Frank Dornseifer, director of legal and policy affairs, at Bundesverband
Alternative Investments e.V., comments on the noises coming out of
European regulators over short selling
In a concerted action between 17th and 19th procedures which would provide access to the financial
September, 2008, the USA, Canada, Australia and – instruments at the date when the AIFM committed
under the lead of CESR - most European countries to deliver them, and furthermore have to implement
introduced bans on short selling with differing a risk management procedure which allows the risks
characteristics. associated with the delivery of short sold securities or
Within Europe there was no unilateral design of the other financial instruments to be adequately managed.
ban despite CESR’s coordination. In consequence the However, in their proposed amendments, the
measures imposed varied significantly. European Parliament insisted on comprehensive
Whereas some jurisdictions only banned naked restrictions - including the ban of naked short sales.
short sales (e.g. Germany, France, Luxembourg, In the trilogue between the European institutions
Switzerland), others banned covered short sales as well involved in the adoption of the AIFM Directive, i.e.
(e.g. UK). the Council, the Parliament and the Commission, it
Only a few countries imposed additional disclosure became clear that - especially on the political side -
obligations concerning short positions (Belgium, UK,
France, Ireland, The Netherlands, Spain).
The instruments concerned were limited in some
“It should be clear that
countries to shares/equities (e.g. Luxembourg), whereas transparency/disclosure is the right
other countries banned short sales of shares/equities as way to enhance and standardise
well as other securities giving similar rights (e.g. share
options) or derivative instruments giving an economic
good market practice and enable
short exposure (e.g. Contracts for Difference, futures). supervisors to detect and sanction
The sense and effectiveness of these measures have abusive activities”
been heavily criticised not only by the industry, but also
by well renowned institutions as EDHEC and Cass there are many misconceptions about short selling
Business School. They underpinned in their studies activities.
that Both industry and science therefore requested
to have a more objective debate, particularly to
• short selling did not cause the tense market acknowledge that short selling is not limited to
conditions - in particular the downward drift activities of AIFM.
and high volatility of share prices of financial In consequence the Commission in a first step
institutions mandated CESR to elaborate a proposal for short
• the bans were ineffective to limit such market selling regulation. After CESR submitted its Proposal
developments. for a Pan-European Short Selling Disclosure Regime
(http://www.cesr.eu/index.php?page=contenu_
Nevertheless politicians and regulators called for groups&id=22&docmore=1#doc) the Commission
international or at least European legislation on short produced its own consultation on the issue (http://
selling. ec.europa.eu/internal_market/securities/short_selling_
In a first step the EU Commission addressed en.htm), which is deemed to be the basis for new
short selling in the draft EU Directive on Alternative legislation on short selling and which is due to be
Investment Fund Managers (AIFM Directive) presented in autumn.
presented in April 2009. In our response to the consultation of the
The Commission clarified in the draft that Commission, BAI expressed that the main goal of
AIFM taking short positions would have to operate future legislation regarding short selling should be:

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From all of us in the Euroclear Collateral Management Team:

Frank, Maria, Fouad, Cédric, Jose, Deirdre, Olivier and Leonardo.
Frank Reiss frank.reiss@euroclear.com – +32 2 326 1586

Maria Carina maria.carina@euroclear.com – +32 2 326 1572
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© 2010 Euroclear SA/NV, 1 Boulevard du Roi Albert II, 1210 Brussels, Belgium, RPM Brussels number 0423 747 369
EU SHORT SELLING
• to provide warning signs of a build up

of large short exposures that may be
potentially disruptive to the orderly
function or stability of the market
• to deter abusive short selling behaviour
and provide proof for post-event
investigation and disciplinary action
• to improve insight into market
dynamics
As these goals are quite distinct and not

necessarily related we argued that further
discussion and analysis (and of course future
regulation) should also differentiate between
these topics.
On the basis of these three objectives we
identified five categories which could be the
source for future regulation of short selling restrictions of short selling activities found in the
activities: explanations by CESR and now also by the German
government.
• information needs of supervisory authorities They advocate for a ‘behavioural change’ and argue
• information needs of market participants that there are ‘unacceptable risks of abuse or disorderly
• protection of financial stability markets’ related to short selling.
• protection against market manipulation or According to the German government, measures
insider dealing recently enacted shall have ‘deterrent effects’ for market
• protection against settlement failures. participants conducting short sales. BAI considers such
motivations as quite dangerous, especially if they are
Most market participants agree that the various and based on assumptions. And they raise suspicion that
varying temporary measures undertaken by regulators such initiatives are driven by political activism rather
of Member States in the recent past regarding short than profound analysis.
selling activities – from disclosure requirements to total There is no justification to compare short selling with
bans of short selling activities - lead to a fragmentation insider trading or market manipulation – an opinion
of the EU market and a distortion of markets and sometimes found in current public debate.
competition. BAI once again wants to clarify with regard to
Therefore a regulatory framework on EU level is such references that short sellers in general neither
indeed mandatory and of course the work undertaken possess insider information nor undertake market
by CESR when elaborating a model for a pan- manipulation. They undertake analysis of markets
European short selling disclosure regime should be as other market participants or financial analysts do.
acknowledged. Therefore the matter of short selling has to be treated
It should be clear that transparency/disclosure is differently from the matter of insider dealing or market
the right way to enhance and standardise good market manipulation.
practice and enable supervisors to detect and sanction Of course if a short seller has insider information
abusive activities. The CESR proposal therefore may or undertakes market manipulation he is subject to
serve as basis for the further discussion of short selling the provisions of the Market Abuse Directive and the
regulation. relevant provisions of the Directive apply.
However, on the other side it has to be considered However, short selling in general should not be
that the benefit of the various measures undertaken discredited by the false assumptions or misconceptions
by the Member States is still in question and the held by some people.
motivations behind are often not traceable. BAI is confident that the Commission, after
Germany recently enacted new legislation regarding analysing the responses given within the consultation,
short selling and CDS transactions which has not been will elaborate legislation on the basis of evidence rather
aligned with other European Member States or the than assumptions, so that short selling and related
Commission. activities like securities lending will be acknowledged in
BAI is quite concerned about motivations for future as useful and indispensable instruments for the
functioning of securities markets. Z

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Market Movements
Market Movements The story of the second quarter was one of heightened volatility, with
investors facing widespread challenges in anticipating market movements.
In the wake of a volatile Despite this, the securities lending industry continued to generate incremental
returns to lenders and their clients.
quarter, Northern Trust’s European indices experienced significant volatility amidst concerns that
Sunil Daswani looks European nations continue to have difficulties taming their budget deficits
back at the key market without harming their economic recovery. Coupled with concerns over the
health of eurozone banks, the Euro STOXX 50 index of Europe’s 50 largest
events and trends of blue chip companies saw significant decline, at one point falling by 19% since
Q2, their impact on mid-April. Writing in July, a very modest rally has since taken place.
the securities lending The scale of European sovereign debt also continued to play on investors’
minds. In an attempt to stop the threat of contagion from the Greek funding
industry, and also crisis, European policy makers established a funding safety net to support those
outlines the approach countries seen to be most at risk, including Italy, Ireland, Portugal, and Spain.
that Northern Trust is
European markets
taking throughout. European lending activity in turn saw high levels of market volatility cause many
investors to close out positions as they sought to protect returns, with hedge
funds continuing to take a cautious and largely risk-averse approach to trading
strategies. The majority of trading activity continues to be centred on high
intrinsic lending opportunities.
In an attempt to prevent the Euro falling victim to market speculation, the
German Finance Ministry announced the re-instatement of a ban on the
uncovered (or “naked”) short-selling of shares in ten German financial services
companies. Whilst this move is reflective of general market nervousness, with
uncovered short selling playing no part in legitimate lending activity, it has had
little impact on the securities lending market.
On the fixed income front, the second quarter saw European government
bonds also experience extremely high levels of volatility, with heightened
speculation leading to increased borrowing demand from brokers, as well as
widening lending spreads.
In particular, Northern Trust has seen significant demand to borrow the
bonds of the weaker countries of Greece, Italy, Ireland, Portugal or Spain. We
have also seen a marked increase in demand for German Government bonds, as
high levels of uncertainty drove a "flight to quality" in the eurozone region.
US and Asia markets

Worries in the eurozone bled over into the US equity market, with stock price
volatility rising significantly. As in Europe, high levels of volatility, coupled with
uncertainty in the domestic US economy, caused investors to unwind their
positions in order to safeguard returns.
Similarly to European markets, a significant amount of short positions were
closed by hedge funds, resulting in a drop in US equity loan volume. Many
investors chose to ‘step to the sidelines’, reducing possible arbitrage positions
during this period, and meaning that overall trading flows slowed considerably.
Asian equity indices experienced increased volatility amidst escalating
concerns over the eurozone’s sovereign debt situation, and the threat of
contagion potentially impeding the region's continuing economic recovery.
In addition, heightened geopolitical tensions in the Korean peninsula, as well
as fears over policy tightening in China, contributed to a general malaise among
Asian investors. These trends are likely to continue into the third quarter.

Market movements
"Some clients, for

example, have
collaborated with us
to explore employing
more sophisticated
lending parameters,
while others are seeking
simplification of the
collateral options open
to them"
Providing flexibility and enhanced oversight

Throughout these conditions, securities lending continued to be a major driver
of market liquidity through the lending of securities and the reinvestment of cash
collateral.
At Northern Trust we have continued to manage our funds conservatively.
Liquidity, prudent maturity profiles and increased allocations to higher quality
investments have been at the forefront of our lending criteria, along with a preference
for shorter-dated investments.
Among our client base, we see continued interest in securities lending, but are
also seeing clients pay particular attention to the structures and risk parameters of
their lending programmes. Some clients, for example, have collaborated with us to
explore employing more sophisticated lending parameters, while others are seeking
simplification of the collateral options open to them.
From providing further comfort in terms of control over their lending activity, to
enabling enhanced oversight of the asset classes and markets of securities being lent,
Sunil Daswani is International
clients have the opportunity to optimise the value of their portfolios while working
Head of Client Relations at
within their individual risk tolerances. Throughout, Northern Trust’s aim is to
Northern Trust and can be contacted
provide clients with flexible lending options and the best opportunity for optimising
at sunil_daswani@ntrs.com
returns from loaned securities. Z

ESECLENDING
eSecLending's Decade
Despite becoming a stand-alone firm in October 2000, the
eSecLending story really begins in 1998, when the business was formed
as part of the United Asset Management group (UAM). The drive behind
This October, the entity’s creation involved the idea of an auction system to achieve best
price for exclusive access to UAM’s portfolios – just one of the innovations
eSecLending celebrates introduced by eSecLending, according to co-CEO Karen L O’Connor.
10 years. “There have been countless memorable moments in our history,” explains
O’Connor. “We were first to introduce to the market the auction model and
we swam against the tide for acceptance as a third-party securities lending
The firm's co-CEOs agent with a totally differentiated product and we were successful.”
Christopher R Jaynes Christopher Jaynes, O’Connor’s fellow co-CEO, identifies three specific
and Karen L O’Connor areas which have marked out eSecLending from its peers over the course of its
existence.
talk to Craig McGlashan First, he cites “customisation and control”. He explains: “Since we do
about the story so far – not manage a pool but rather customise individual client lending structures,
and to come our clients have greater control over their programme structure, guidelines,
parameters, counterparty risk, and trading strategy. eSecLending’s clients are
each treated separately and their programmes are customised in accordance
with their individual risk tolerances and goals. Our flexibility allows us to
incorporate various programme structures and criteria for each client.”
Secondly, Jaynes believes that being the only agent that uses an auction as
the first step in the lending process acts as a further benefit for clients. “The
auction acts as a price discovery tool that facilitates informed decision making
on the lending execution strategy that is best for each portfolio or subset of a
portfolio whether it is via the Traditional Agency route or Agency Exclusives,”
he explains.
The final area that Jaynes believes marks out eSecLending is its position as
the only independent agent in the market, meaning there are “no potential
conflicts of interest with an affiliated borrower or other affiliated business
lines”.
While eSecLending would point to these differentiating factors as one of
the reasons of their success, swimming against the tide is never easy, and
O’Connor admits that changing the mind set of clients used to the custodian
lender model was one of the biggest challenges the fledgling firm faced.
“A big challenge was the market’s lack of acceptance for third-party
securities lending agents as it was historically viewed as an operational
eSecLending 10-year timeline
Founded as stand-alone entity

$200bn av. lendable assets
Boston headquarters established
European office created
2000 2001 2002 2003 2004 2005

ESECLENDING
product tied to custody, rather than an investment product,” she says.

In those early days, how did eSecLending go about convincing clients
who were used to the existing model to switch? Jaynes explains: “Our
approach was designed to introduce investment management practices to
a market which had previously been viewed as a back-office function and
to empower beneficial owners with the ability to have greater control over
their programmes by providing them increased transparency, flexibility and
reporting.
“The initial clients in our programme were sophisticated institutions who
were already viewing securities lending as an investment management and
trading discipline and therefore saw the benefits our model offered. These
clients have become strong references for us which has helped contribute to
the growth of our business.”
O’Connor adds that the “lack of acceptance” for third-party securities
lending agents has diminished over the company’s time in the business. “This
misperception is less prevalent today as the market is increasingly viewing
securities lending as an investment management and trading function,” she
says.
Jaynes believes that eSecLending’s success has been pivotal to this change
in perception among market participants. “We played a role along with other
agents and beneficial owners to increase the acceptance and adoption of third-
party lending structures across the market,” he says.
The next major step in the growth of eSecLending came in 2006, when “The face of the
private equity firm TA Associates bought the company from Old Mutual, industry has
which had itself purchased eSecLending along with UAM in the fourth changed forever.
quarter of 2000.
Susan Peters, then eSecLending CEO, said at the time that the buy-out Today securities
“allows us access to the talents and experience of TA and its deep network lending is not
of financial partners, while also maintaining continuity in management and relegated to a few
employees, and preserving our independence as a lending agent”.
By this point, eSecLending had already passed USD200 billion in average quotes in a trade
lendable assets, and would pass the USD400 billion mark the following year – magazine but
today, it has auctioned more than USD2 trillion of assets. is played out in
This rapid growth, while welcome, has presented challenges of its own,
according to Jaynes. “We have experienced rapid growth over the last 10 mainstream media
years,” he explains. “The dynamics of creating a sound company during a on a regular basis”
period of rapid growth is always a challenge. Creating an infrastructure to
support the growing business that reflected our low tolerance for risk while
also being nimble enough to support sophisticated clients’ ever-evolving needs Karen L O'Connor,
has been both challenging but also exciting.” eSecLending

Asia Pacific presence established
1st $1bn in value generated
$2trn auctioned
$100bn assets on loan GSL Award winner

2006 2007 2008 2009 2010

ESECLENDING
While increasing its size in terms of lendable assets, eSecLending has also been increasing its global reach. In 2009,
the firm opened an office in Sydney, Australia, which represents “our commitment to expanding our presence in the
Asia-Pacific region”, according to O’Connor, and, with the existing Boston and London offices, creates a “truly global
footprint” for the firm. The company now employs more than 130 people.
Of course, much of this recent growth has come against the backdrop of “the most significant financial crisis since
the Great Depression”, in O’Connor’s words, something that has been “perhaps the biggest challenge” in the firm’s
10-year history.
“Like all financial service companies, the credit crisis presented a challenge for our company as we worked to
manage counterparty credit deterioration, regulatory changes and liquidity challenges in Q4 2008,” she says. “These
were unprecedented times and our ability to navigate through the crisis was a testament to the strong relationships we
have built with our investors, business partners, clients and counterparties.”
However, like many in the industry, eSecLending has seen some benefits arise from the volatility during the credit
crisis, not least the increased focus among beneficial owners on risk management, transparency and performance.
Jaynes also believes that, over the past 10 years, the “key features” of a successful programme have become “more
evident”. These are outlined in the box below.
O’Connor calls this an “incredibly exciting time” for the market. “The face of the industry has changed forever,” she
explains. “Today securities lending is not relegated to a few quotes in a trade magazine but is played out in mainstream
media on a regular basis.
“What was once a back office function is now properly viewed as a front office investment strategy. It is generating
the attention and focus that it deserves. It is my belief that the future outlook for securities lending will be as an
investment tool for beneficial owners with a proper board of directors and regulatory governance.”
What of the future? It is no secret that, since the onset of the crisis,
many beneficial owners have re-entered the market and some have
even expanded their programmes. O’Connor adds: “We are also
seeing new supply from certain beneficial owners starting lending
programmes for the first time as evidenced by some of the new clients
we have added thus far in 2010.
“As beneficial owners review and restructure their programmes,
many are looking for greater transparency and control and
customised solutions built around their unique risk tolerances, return
objectives, assets, and goals. We are optimistic about the future and
strongly believe that the current market trends will only accelerate,
which is positive for eSecLending given that our model is well
positioned to respond.”
No one would argue that the face of securities lending has changed
dramatically since a team at UAM looked into possible alternatives to
the traditional securities lending model. How the industry will look
in another 10 years’ time is anyone’s guess, but it is likely that third-
party players will continue to play an important role. Z
Chris Jaynes' key features of a

successful securities lending programme
Unbundling: Utilising best-in-class providers Intrinsic Value: Focusing on generating returns
based on their core competencies for custody, solely from the lending value of securities rather
securities lending and cash collateral management than returns from cash collateral reinvestment
Customisation and Control: Tailoring Price Transparency: Auction process provides
programmes around each client’s unique risk/ data to make better informed decisions and
return profile to provide greater flexibility and facilitate best execution
control versus pooled models allowing beneficial Client Service: Frequent communication,
owners to more effectively monitor and mitigate customised reporting, and access to entire
risks organisation Z

The financial information
you need when you need
it. Because there’s no
pause button in business.
Considering the current economic environment, staying on top of your securities lending programme and
managing risk has never been more important. So Northern Trust has launched a specialised securities
lending technology and reporting platform designed to provide you with transparent, targeted and timely
information. Just one of the reasons Global Custodian named us Best in Class for reporting.* For more
information, visit northerntrust.com/securitieslending or call Chris Doell at +1 312 444 7177 or
Sunil Daswani at +44 (0)20 7982 3850.
*Securities lending survey 2010
Asset Servicing | Asset Management | Wealth Management

© 2010 Northern Trust Corporation, 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the United States. Northern Trust operates in Canada as The Northern Trust Canada, Branch which is an authorized foreign
bank branch under the Bank Act (Canada) and as The Northern Trust Company, Canada which is an authorized trust company under the Trust & Loans Companies Act (Canada). Deposits with Northern Trust and its affiliates are not insured by the Canada
Deposit Insurance Corporation. Northern Trust, London Branch (reg. no. BR001960) registered in England & Wales each with their registered office at 50 Bank Street, Canary Wharf, London, E14 5NT. Where Northern Trust’s UK entities undertake
regulated business, they are authorised and regulated in the United Kingdom by the Financial Services Authority. Northern Trust (Guernsey) Limited, Northern Trust Fiduciary Services (Guernsey) Limited, Northern Trust Fiduciary Company (Guernsey) Limited and
Northern Trust International Fund Administration Services (Guernsey) Limited are licensed by the Guernsey Financial Services Commission. Northern Trust International Fund Administrators (Jersey) Limited and Northern Trust Fiduciary Services (Jersey) Limited are
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Commission de Surveillance du Secteur Financier. Northern Trust Global Services Ltd (UK) Sweden Filial is authorised by the Financial Services Authority and subject to regulation by the Finansinspektionen.
DELTA ONE
Making Sense of Delta One:

the role of technology in balancing risk
with Jean-Baptiste Gaudemet,
Product Manager, Investment Banking at Sophis
Driven by the need to improve liquidity and an
overall requirement to reduce the risk of investments, the
last 12 months have seen many banking organisations
strengthening their securities financing business and use
of Delta One instruments such as basket swaps and total
return swaps.
Theoretically, the use of Delta One instruments should
be risk neutral for banks. But, as the size of deals is often
in the billions, if something does go wrong, it can have a
significant impact on the P&L.
The question that should be posed by Chief Risk
Officers is whether current systems and controls are up to
the task of managing the complexity of processes involved
in running this business securely and efficiently.
The importance of Delta One in securities finance

Securities finance refers to the business of stock lending
and borrowing, and the use of repos for short-term
borrowing requirements.
in Delta One trading, both from large international banks
Delta One products are a class of financial derivative
and from financial institutions that want to improve
that are non-optional and as such have a delta of one -
liquidity by trading in basket swaps.
that is a 1% move in the underlying results in a 1% move
Delta One products present two key advantages
in the derivative. They often incorporate a number of
compared to repos and buy and sell back trades:
underlying securities and as such give the holder an easy
Delta One products are more secured than
way to gain exposure to a basket of securities via a single
collateralised lending (such as repos) because the lender
instrument such as a basket swap.
legally fully owns the security;
In addition to the more traditional business of stock
They are more flexible than buy and sell back contracts
lending and borrowing, securities finance teams can
since they provide full flexibility on the structure of the
use Delta One products to provide long or short market
funding leg.
exposure, financing and leverage to investors and hedge
funds. This offers investors the opportunity to invest
The benefits of Delta One to financial institutions
in a basket of underlying assets, which can include
Delta One products such as basket swaps are being
different combinations of asset classes such as equities,
used by financial institutions in three main ways:
commodities or bonds, without having the expense of
purchasing them directly.
Funding or finance swaps
Delta One products are nothing new, but have
A financial institution that owns a portfolio of assets
experienced a recent resurgence as investors move away
needs funding but does not want to lose the economic
from exotic and complex structured products, and banks
performance of the portfolio. A bank with a good credit
require a more efficient way of providing exposure and
rating borrows money cheaply to fund the purchase of the
managing risk with collateral management.
portfolio of assets from the financial institution.
Market conditions, the need for greater liquidity and
Then they enter into a basket swap where the bank
better managed risk are key drivers behind the flight to
sells the performance of the portfolio (=basket) to the
Delta One.
financial institution in exchange for a periodic interest
As a result, we have noticed a huge growth in interest
payment based on Libor + spread.

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Lending, Repo, Swaps and Collateral
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email: info@4sight.com www.4sight.com

DELTA ONE
The bank makes money as the interest rate it receives with highly complex and fast-changing trading conditions
in the basket swap is higher than the interest rate that including front-to-back-office management of trade life
they have to pay for the funding of the purchase of the cycle events, risk reporting and collateral / credit risk
portfolio. The bank is fully hedged as it owns the portfolio management.
(long) and has sold the performance in the basket swap
(short). Furthermore, depending on how Delta One products
are considered in a financial institution, the P&L is
Market access: accounted for either in accrual or net present value.
A financial institution such as a hedge fund will invest Some institutions use both methods depending on the
in the performance of a basket swap (long or short) rather books holding the trades. A system needs to be flexible to
than buying or selling the actual underlying instruments. support both methods.
This allows the institution to enter a market without
having to raise all the money to invest in the underlying Implications for technology
instruments and leverage its cash more effectively. We find that many institutions are attempting to
Collateral is required to cover the credit risk associated manage basket swaps using in-house systems based on
with the deal. The bank will ensure that it hedges the spreadsheets. Not only can these systems be inaccurate,
exposure – this can be done using different linear they stand alone from other financial systems within the
derivatives or the actual underlying. organisation so that information does not flow safely from
front office through to back-office and reconciliation
Index arbitrage - becomes an issue.
Index futures versus underlying or basket swap: If the bank is not aware that positions are not
Banks make money from the difference properly hedged or there is a difference
between the implied financing rate of the between front- and back-office positions,
future and the actual financing cost of the they face the very real risks of lost income
bank. and reputational damage - as was
The financial institution that bought the demonstrated in the Jérôme Kerviel
performance in the basket swap needs to Société Générale case.
post cash collateral (initial margin) with Sophis is well-positioned to meet the
the bank to ensure it can pay the bank in requirements of banks looking to expand
case the performance is negative. and improve their Delta One business.
The combination of our extensive experience in
Challenges of managing Delta One managing equity derivatives as well as interest
The challenge with Delta One trading is that rate derivatives and collateral both in terms of the
there are so many variables and trade life cycle events front-office P&L as well as mid- and back-office workflow,
over the period of the deal. For example, the stocks in the means that we are well placed to provide a comprehensive
basket can be substituted for others; the price differential solution to support a bank’s Delta One business.
can be reset each quarter, month, week or at the end The key is to have the flexibility to manage all the trade
of the contract; profit and loss on the performance of life cycle events in a robust environment with complete
the basket can be paid at reset periods or accrued in a operational control over the front-to-back workflow.
separate account. In addition to this Sophis offers comprehensive P&L
Corporate actions relating to the underlying stock of reporting based on both net present value as well as
the basket swap must be processed on the swap. There accrued methodology taking into account the precise
are also tax implications for the owner of the underlying funding costs and detailed P&L decomposition.
instruments related to entitlements such as dividends and Sophis has developed a dedicated module that enables
coupons. organisations to manage operational processes and risk
All of these different aspects can put significant across the whole basket swap trading process.
pressure on the middle office in terms of the resources
required to manage the controls and modifications for Conclusion
each contract and the cost of computing daily pricing and The flight to Delta One and securities finance is
managing margin calls, especially if a firm is essentially unlikely to slow over the next year or two and financial
managing these contracts on spreadsheets. institutions are to gain a lot from it. However it will be
The variable nature of these products means that vital to have the right systems and processes in place to
standard systems and spreadsheets struggle to cope. manage these instruments if financial institutions are to
Banks and third parties increasingly recognise that they avoid the significant implications of not balancing the
need to manage basket swaps using systems that can cope books. Z

G L O B A L A G E N T S E C U R I T I E S L E N D I N G
GLOBAL
Solutions
At Scotia Capital, the global corporate and investment banking and capital
markets arm of the Scotiabank Group, we are dedicated to helping clients seize
opportunities, unlock value, and achieve great results. Our Global Agent Securities
Lending team is positioned to provide clients with a powerful platform based on
optimizing the quality and control of their securities lending program. As a full
service third-party securities lending provider, we offer a full suite of distribution,
cash management and risk management products to complement clients’ core
trading and investment objectives.
At Scotia Capital, our superior insight has consistently delivered outstanding

results.
Agent Securities Lending Buy-Side

GENE PICONE FRANK GIFFEN
212-225-6587 416-863-7600
gene_picone@scotiacapital.com frank_giffen@scotiacapital.com
www.scotiacapital.com/agentlending
TM
When insight matters. TM
GLOBAL AGENT SECURITIES LENDING
TM
Trademarks of The Bank of Nova Scotia. Trademarks used under license and control of The Bank of Nova Scotia. The Scotia Capital trademark is used in association with the global corporate
and investment banking and capital markets businesses of The Bank of Nova Scotia and its various subsidiaries in the countries where they operate, including Scotia Capital (USA) Inc. - a
member of the Scotiabank Group and an authorized user of the mark.
OPERATIONS
Optimal Operations
Rupert Perry, founder and CEO of Pirum, talks to Roy Zimmerhansl about the
latest developments in operations automation at the 2010 ISLA Conference
Zimmerhansl: One of the major back from the lender we’ll recognise happens very often but it can do
hassles for us as a borrower was the it's different to what the borrower and we can support that within the
process of calling in returns - finding has. We then automatically reshape system.
the right person, getting through and on the borrower side, taking the
passing on all the details then hoping borrower’s 1,000 return, cancelling Zimmerhansl: So it is more than
that both sides have written down it and booking two shapes of 500 just a reconciliation process, it
the details correctly. Where does your instead so that it all matches up. actually does impact the settlement
product offering stand on that? In addition, we try to make sure cycles and the end process.
that all of the typical logic that a
Perry: We take the information lender would want to apply around Perry: Yes, we are automating the
booked by a borrower and, using booking a return, checking for cut- complete process.
our real time feeds, match up to the offs and all the different types of You wouldn’t believe how often
lender side to work out exactly which things they want to check, can be returns are booked against the
trade the return should be booked validated up front even before we’ve wrong side on the lender’s system.
against in their system. actually sent the transaction to them. For example, if a borrower is doing
We then send a message to If it doesn’t meet one of those things a return, if there are multiple trades
the lender to have that return we can notify the borrower straight out in the same security, they’ll pick
automatically called into their away. So it’s a much faster and more the trade with the highest rate.
system. Once they have booked it, we efficient process. Then when the lender gets it,
then, through their real time feed, get they’ll book it against a different
it back again and re-reconcile it, so in Zimmerhansl: And is that trade and then, because it’s the same
case they book it into different shapes customised by lender or is that a security, the trade will settle in the
or into different accounts we will generic profile? market, but the next day you end up
then recheck it when it comes back with what we call an allocation break
into the system. Perry: It’s completely customisable on fee rate, because clearly while
For example, take a return for for each lender. Each of the different the total quantities still agree, the
1,000 shares which on the lender side rules we decide with the lenders different quantities at the different
was actually two trades of 500 shares. and they can be changed on a per- rates no longer agree.
When we get the two shapes of 500 relationship basis. We don’t find it
Zimmerhansl: I have to disagree
with you on one point there. You said
that I wouldn’t believe the number
of times trades get booked against
different returns – I would.
It strikes me that Pirum’s products
reflect the real life of our business
process. As an operations function,
clearly you have most control over
your internal processes, so firms
looking at improving those processes
will concentrate on their internal
cycles. After you feel you have that
under control, the natural step is to
look at improving those processes
in conjunction with your external
counterparties. The natural next step

OPERATIONS
for that is the real time environment the cleaner everything looks and the but the next generation is real-time
and you have moved into that space. less there is for everyone to do. That services and automation.
in turn enables you to drive a much We are working on non-DVP
Perry: We have and you are right higher volume without having to hire payments automation, both for
to say that people are focusing more many more staff. prepay and return cash. DVP
and more on the external processes. is agreed as part of the security
I think this is something the Zimmerhansl: Clearly it’s not going settlement, but for non-DVP there
industry is recognising as well. to be possible to eliminate all the are a whole series of payments for
For example, ISLA has recently errors so where there are errors it is many different trades that must be
announced its Automation Standard, also about highlighting them quickly settled on any one day and currently
which is designed to raise the and efficiently and allowing people this involves a fairly manual process.
profile of automation between the opportunity to deal with them.
counterparties in the market. The Zimmerhansl: Which is?
Automation Standard has a whole Perry: Absolutely. There are two
series of steps over the coming years, stages – the first stage is to detect Perry: Each side runs a report
where people will be expected to use that there is a problem, and the listing all of the loans that need
more and more of the services. second stage is that you need to know to be prepaid then talks to their
As it stands, firms will get the ISLA exactly what the problem is and get it counterparty. If the totals agree then
Automation Standard Award if they fixed as quickly as possible. great, but if they don’t then they have
use Contract Compare as the very to go through everything by hand.
first starting point. The next step Zimmerhansl: The ISLA We are taking that process
change will require firms to be on a Automation Standard sounds like online. With the information on a
billing comparison platform and then quite an exciting initiative and has screen, they don’t have to call the
in a year or two’s time, automated the opportunity to transform the counterparty. Once the discrepancy
marks and returns will be included. industry. has been identified they can then,
So the whole industry will gradually using the real-time feeds in their
move forward lock-step from the level Perry: You are right. They are trying own system, get it booked, get the
they were at a few years ago where to move the industry forward. The amount agreed, flick the button and
there was no automation at all. difficulty is that it’s impossible to have all the postings made directly
move everybody forward at exactly into their system.
the same time so it can only be
“You are removing the element of human error that can

creep in, and the more automation that’s in place, the
cleaner everything looks and the less there is for everyone
to do. That in turn enables you to drive a much higher
volume without having to hire many more staff."
We do find those who have pushed done in steps. They are encouraging Zimmerhansl: And it does the same
the farthest ahead have the clearest participants to join the platforms. work for returns?
and easiest run. What we’re looking to do is provide
You book the trade, which a platform for the future and we’ve Perry: On returns it is similar. We
has probably been agreed on an built out an awful lot of services that are doing a whole load of things to
automated trading platform up front, are going to achieve an astonishing improve that process as well. We are
it gets compared automatically, level of automation and efficiency. in the process of building something
marked automatically, returns are It is a question of driving up where we make the notification
automatic, so the guys in operations utilisation and using the tools that process much smoother and much
barely touch it and there’s very little have been built. We see a natural more efficient to people who are not
to actually go wrong. progression from the overnight tools providing a real time feed. That will
You are removing the element of that most of the market has adopted be coming later in the year. Z
human error that can creep in, and already, so most people are using the
the more automation that’s in place, products we introduced 10 years ago,

US TRI-PARTY REPO
US
GSL canvassed
market participants'
opinion on the final
Tri-party report from the Tri-

Party Repurchase
Agreement
Repo - Infrastructure
Reform Task Force
Reform
- and the resulting
NY Fed White
Paper
In May, the Tri-Party Repurchase Agreement Infrastructure Reform

Task Force released its final report and invited comment from the industry.
The report was launched in the wake of the credit crisis and aimed to avoid
a repeat of the contagion that spread from one troubled party to another
within the USD1.7 trillion market.
But following the publication, the Federal Reserve Bank of New York
released a White Paper commending the report, but warned that it did not
address all of the areas currently on regulators' radars.
Tellingly, the Fed said that it would be required to take "additional actions,
as necessary".
How much should players in the tri-party repo market be worried over this "The measures
question? And do those participants agree with the Fed's suggestion that the
Reform Task Force's final report was worthy of commendation?
outlined to ready
Certainly, on the second point, industry players seem to be agreed that the cash investors for
Task force has made the right suggestions. the collapse of a
The group's final report was released for public comment and, judging by
the comments that have been received, most people seem to think that the
large dealer 'do not
recommendations are sound. directly address
So what are the recommendations? concerns that such
In the Task Force’s report, five main issues were outlined for improvement:
operations, dealer liquidity risk management, margining practices and
failure could prompt
loss anticipation, dealer default contingency planning, and efforts towards the simultaneous
transparency. liquidation of large
More specifically, the report stated that the market should have less reliance
on intraday credit from clearing banks and that dealers should factor any
amounts of assets
losses in secured funding into their liquidity risk management processes. and create fire-sale
Additionally, the report said that greater market transparency “is needed conditions'"
in all respects”. It added: “Broad availability of real time prices for many
collateral types should be used by Clearing Banks and Dealers to provide
same-day valuation information for as large a population as possible.”
So far, so good. The Fed’s white paper, based on the Task Force’s report,
seemed to agree. It said that it commended the efforts from the task force
and added that the recommendations “should help reduce the potential for
problems at one firm to spill over to others, clarify the credit and liquidity

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US TRI-PARTY REPO
risks borne by market participants, and better equip to create a plan for such an event, otherwise it may find
market participants with the tools to manage these risks that regulators will make one for them - an unsatisfactory
appropriately”. solution for all.
However, the white paper warned that the Task Force The concern that any participants must be able to a)
did not address some areas of concern. This included deal with such a situation outlined above in terms of
that the measures outlined to ready cash investors for liquidating collateral and b) be part of a plan to avoid the
the collapse of a large dealer “do not directly address situation escalating, seemed to indicate that players within
concerns that such failure could prompt the simultaneous the tri-party repo market could be subject to further costs
liquidation of large amounts of assets and create fire-sale in future, potentially muscling out some of the smaller
conditions”. participants. But this did not seem to be an opinion held
Speaking to people in the tri-party repo space, the by many, with most people saying that it would be hard
prevailing attitude seems to be that, in the first instance, to tell exactly what effect the regulations would have,
any players within in terms of
that market should their impact
be sophisticated on players
and strong enough both large and
to be able to small.
deal with such Certainly
a scenario. Any the Task
entity which plans Force's report
to invest billions has been
of dollars in the welcomed by
short-term repo the industry,
market must be although
able to liquidate whether it is
their collateral exhaustive
in the event that enough
a counterparty remains
defaulted. a point of
A concern contention,
that some of the and there is
participants within certainly a
the market do lot of work
not have such a to be done to
capability may ensure that
well be what had worried the regulators. its recommendations can be enacted. But with the New
Of course, this does not solve the problem that, in York Fed adding the caveat within its own White Paper
the event of a large dealer defaulting, the sudden mass of "additional actions, as necessary", is there a concern
liquidation of collateral will force down prices and that, despite the best efforts of the Task Force and the
potentially result in further catastrophe. The financial willingness of the industry to adhere to its suggestions,
world moves fast but the spectre of Lehman Brothers the regulator may step in and take a snap action, which
International Europe is obviously still fresh in regulators' could result in causing more than good?
minds. "Regulators will always want to make sure that they can
Most voices are certainly agreed that regulation should step in if they deem it necessary," was the main response
always be the last resort, and that the market should be to that question. It seems that the US tri-party repo
used to deal with the issue - namely by dealing with the market may yet be able to decide its own destiny. Z
problem before it turns into a serious issue, by working
together to ensure that any dealer which finds itself in For the New York Fed white paper and task force
trouble is kept liquid for as long as possible, avoiding report, visit: http://www.newyorkfed.org/banking/tpr_infr_
the fire sale conditions that would otherwise create reform.html
catastrophe.
Clearly Lehman Brothers is just as fresh in the minds For the Tri-Party Repo Infrastructure Reform Task
of industry participants as it is in those of the regulators. Force final report, visit: http://www.newyorkfed.org/prc
But the industry will need to ensure that it works together

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EUROPEAN REPO
European Repo Market

Status, trends and challenges
Ugo Bonaugurio takes a look at the major issues in the European repo space
The European Repo market counterparty risk and industry and market needs further harmonisation
experienced significant growth regulatory initiatives will foster the and standardisation of the clearing
between 2001 and mid-2007 under growth of the repo market making it and settlement infrastructure and
the increasing willingness of banks an even more important component processes to support sustainable
to leverage their balance sheets and of the money markets. growth.”
investors’ attitude to lend surplus cash The market has now recovered In this regard, continues Dumas:
against collateral. and the value of outstanding repo “The presence of domestic settlement
In June 2007, the market had contracts in December 2009 was systems not only increases transaction
reached a peak size of EUR6,775 EUR5,582 billion. costs and hinders the cross-border
billion according to the ICMA Romain Dumas, managing director mobilisation of assets in real-time,
European repo market survey but, who is responsible for the government but also increases the likelihood of
after Lehman Brothers’ collapse, repo desk at Credit Suisse in London, repatriation of collateral. This could
difficulties obtaining a reliable and says: “Currently, there are two significantly reduce liquidity and limit
independent valuation of more illiquid contrasting forces driving market the growth of the market, especially
securities and uncertainties about activities. in countries with high perceived
financial institutions’ creditworthiness "On the one hand, banks are sovereign risk.”
pushed the market volume down to deleveraging their balance sheets, In addition to infrastructural
a record low of EUR4,633 billion in reducing the use of repos. On the changes, a combination of other
December 2008. other hand, the issue of counterparty factors will influence the development
Despite the short-term negative risk and the difficulties of some banks of the market in the coming years.
impact of the market turmoil, the to secure funding in the unsecured It is a well known fact that as a
lesson learnt can be a catalyst for money market have led to increased consequence of the sub-prime crisis
further market developments; secured borrowing activity. It is European repo market participants
banks’ reluctance to lend on an difficult to predict which one of these are reassessing business fundamentals
unsecured basis, rising concerns about two forces will prevail, but the repo and are now more focused than

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EUROPEAN REPO
“At some point, the ECB needs to start withdrawing liquidity from the system
but whether this will have a destabilising effect or fuel the expansion of
the private side of the repo market is an open question, which all market
participants want an answer to"
ever on the quality of collateral and “special” trading but in recent months Eurozone and the exit strategy of
counterparty risk management. In the funding motive has increased in the ECB will play a key role. During
this context, trading activity tends to importance. the market turmoil the ECB took
be more concentrated on government As one market participant - who unprecedented measures to support
bonds and demand is rising for wishes to remain anonymous - says: the liquidity of the money markets.
CCP services and standardised “The high volatility of the Euro-area The extension of the securities
baskets tradable on electronic trading sovereign spreads observed in the accepted as collateral and the
platform. last months along with the increasing number of counterparties eligible to
The shift of activity from bilateral number of ‘fails’ have depressed participate in open market operations
to CCP trading is already in place relative value trading activity and, as a together with the special liquidity
and the regulatory initiatives under consequence, special repo volumes. facilities have provided a relevant
discussion, such as Basel III, may "A low interest rate environment source of funding particularly for
favour this trend even further. reduces market participants’ economic those financial institutions that have
Data published in the last ICMA incentive to deliver securities but the had no access to the market, shifting
European repo market survey show magnitude of this phenomenon is financing activity from the private
that the percentage of repos traded highly dependent on the structure of sector to the ECB itself.
on electronic trading platforms and the market in European countries, the At some point, the ECB needs
cleared through a CCP was 18.3% in availability of auto-borrowing facilities to start withdrawing liquidity from
December 2009 compared to 10.5% and the pool of lendable assets. The the system but whether this will
in December 2007. introduction of a financial penalty for have a destabilising effect or fuel the
From those trends and dynamics ‘fails’, on the wave of the industry-led expansion of the private side of the
it emerges that banks are currently initiative launched last year in the US, repo market is an open question,
accessing the repo market mostly could help the recovery of the special which all market participants want an
to obtain collateralised funding. trading business.” answer to. Z
Historically, however, a relevant part Behind the scenes, the
of repo activity was concentrated on macroeconomic environment in the
From GSL.tv
ICMA’s European Repo Council (ERC) has published a White Paper on the European repo market,
including the role of short-selling, the problem of settlement failures and the need for reform of the market
infrastructure. It stressed the ERC's belief that the repo market is essential for the efficiency and stability of the
financial system.
The White Paper was commissioned by ICMA’s ERC in response to regulatory considerations which could
impact the repo market. The ERC is concerned that regulatory initiatives should not constrain the capacity
of the repo market in Europe, particularly given the increasing demands that are being made on it, both from
regulators and governments.
The ERC warned that some of the proposals on restricting short selling would have unintended
consequences for the securities market, increasing costs and risks for issuers and investors alike.
Elsewhere in the White Paper, the ERC outlined the "urgent need" for action to remove the barriers to the
efficient cross-border transfer of securities posed by the settlement infrastructure. The paper also focused on
some infrastructure problems which the ERC said have caused fails in the system in recent difficult market
conditions. Solutions to these problems were also suggested. Z

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MARKETS
South Korea
and Taiwan
Cherry Reynard looks at two of the fastest growing Asian markets
Asia is set firm to be the engine of world the standards prescribed in Standards Governing
growth for the next decade and beyond. Its financial Eligibility of Securities for Margin Purchase and
markets are developing to reflect that growth. Short Sale are eligible for lending and borrowing.
Its securities lending markets have grown from Thibaud de Maintenant, global head of domestic
a near-standing start just a decade ago to multi- markets, Direct Securities Services, Deutsche Bank says
billion dollar industries today. The regulatory that the revision in rules to permit OTC-type transactions
back-drop is increasingly benign and both for foreign investors brought about increased activity in
markets are drawing in foreign participants. both markets. OTC type securities borrow/loan (SBL)
Both markets started tentatively through a central transactions were introduced in the Taiwan market
depository – Korea in 1996, Taiwan in 2003. South together with the centralised Taiwan Stock Exchange
Korea early start means that it is now substantially model in 2003. de Maintenant adds that with the addition
larger at around 5x the size of Taiwan (source: of OTC transactions, both markets have seen active
Pan Asian Securities Lending Association), but foreign investor participation (most are borrowers) and
both have followed a similar growth pattern. transaction volumes have increased more than tenfold.
The securities lending markets in each country Korea introduced foreign participation in the Korea
“When Korea started out there was a premium on lending and borrowing. It
tended to be done in exclusive arrangements, lending to specific borrowers
only, but now it is much more open” Andrew Cheng, J.P. Morgan
started out purely for the domestic market, Securities Depository securities lending programme in
but have now opened out to foreign investors November 2001. The SLB trading volume hit US$10
through a combination of responsive regulation billion in 2004. Taiwan’s volume hit the same US$ 10
and greater interest in the Asian region. billion level in 2007 after its government clarified business
J.P. Morgan was one of the first foreign players into tax and manufactured dividend tax issues in August 2007.
South Korea in 1996 and opened a Taiwanese office Despite the setbacks associated with the financial
in 2009. Andrew Cheng, Asian head of securities crisis, the accumulated lending balance of Taiwan
lending at the group, says: “When Korea started out increased to USD3 billion this year (from USD1 billion
there was a premium on lending and borrowing. in 2007), while in Korea it has reached USD10 billion
It tended to be done in exclusive arrangements, (from USD7 billion in 2007). However, participation
lending to specific borrowers only, but now it is much in the two markets is generally dominated by foreign
more open. Taiwan has also changed its regulations borrowers (mainly foreign name broker dealers) and local
over time to make it more investor-friendly.” lenders (via TWSE or KSD or local securities firms).
Cheng says South Korea is now the fifth largest de Maintenant says: “Foreign broker dealers make
securities lending market in the region (after Japan, up the major proportion of borrowing of Korean and
Australia, Hong Kong and Singapore) with Taiwan Taiwanese shares locally for strategic trading purpose.
still emerging. Both tend to be more focused on They usually borrow shares from local lenders such as
equity lending rather than fixed income securities. insurance companies, securities finance companies and
All listed stocks are eligible for lending and pension funds via the designated central agents, KSD
borrowing in Korea. In Taiwan, the stocks that meet and TWSE, or directly from local securities firms.”
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MARKETS
The prime brokerage businesses of broker dealers are legislators have recently permitted the use of US dollars
active in both markets, as they have underlying hedge as collateral. Cheng says: “Previously participants had
fund clients to back their transactions. In Korea there to convert their cash into Taiwanese dollars before they
are more foreign lenders in the market than in Taiwan, would be allowed to borrow. Now they can transfer US
as its recall sale and fail trade coverage scheme provides dollars, it should provide some flexibility to borrowers
more protection to lenders. Foreign lenders in Korea who do not want to increase their currency exposure.”
are usually sovereign wealth funds (SWFs), insurance South Korean markets have not had these restrictions.
funds, pension funds and private fund managers. Now, de Maintenant believes that the biggest
In Taiwan the major lenders are the four government concern in Korea is the borrowing limit from local
funds and banks such as Chinatrust Commercial lenders, currently set at KrW50 billion (USD42
Bank, which launched its SBL business in late 2005. million). In Taiwan, the stumbling blocks for foreign
It has assets under management of about TWD28 participants have been the recall sale process,
billion (USD828 million) and market share of high collateralisation requirement and higher
11.4% (to end June). The major borrowers on the cost of using SLB brokers to make a trade.
sidelines are foreign institutional investors who use That said, there remains central government
the SBL as an investment tool to facilitate their commitment to supporting securities lending. de
investment strategies or for trading purposes. Maintenant says: “To attract more participation and
Steve Tsai at Chinatrust says that from 2004 to increase overall market liquidity, the governments of
2008 the total market value traded increased annually Korea and Taiwan have reviewed their SLB regulations on
- even in 2008 when financial turmoil forced the an annual basis to ensure that their rules are relevant and
government into short-selling restrictions. However, friendly to foreign investors. Revisions have included an
the total transaction volumes were hit in first half of increase in borrowing limits, expanded SLB participation
2009 and dipped below those of 2008, but transactions scope, and removal of up-tick rules for index stocks.”
have resumed their strength in the first 2010. But the markets face the same pressures as other
“To attract more participation and increase overall market liquidity, the
governments of Korea and Taiwan have reviewed their SLB regulations on
an annual basis to ensure that their rules are relevant and friendly to foreign
investors” Thibaud de Maintenant, Deutsche Bank
In Taiwan, Tsai says that the TWSE system provides securities lending markets in the wake of the financial
three kinds of transactions: fixed-rate, auction type crisis. Cheng says: “Lenders will want to have higher
and negotiated transactions. In terms of SBL trading transparency in the programmes they are using,
volume for June 2010, auction type transactions particularly with regard to cash collateral. They are
accounted for 33% and negotiated transactions likely to want to use separate accounts for different
accounted for 67%. He adds that negotiated transactions individual clients.” De Maintenant says that this
are getting more popular because of the flexibility need for transparency is also likely to extend to the
in collateral type and initial margin requirements authorities and both countries will see increased
Regulation has played a role in the development transaction reporting requirements from regulators.
of both markets and this is still ongoing. In South Cheng also believes that as income from securities
Korea, there has been some regulatory intervention lending programmes falls, securities lending may
on short-selling in the aftermath of the financial crisis. no longer be administered by the custodians. He
These temporary short-selling restrictions were lifted says: “I think there will be more non-custody
relatively quickly, but the short-selling of financial lending opportunities. They will want a professional
stocks is still prohibited. More recently regulators have agent to handle their lending programmes.”
placed restrictions on the short-selling of non-domestic Deutsche estimates that the current number of
exchange traded funds. Cheng says that the restriction is foreign investors lending out their stock holdings in
only in place until regulators review the taxation status these two markets is less than 10%, so sees room for
of ETFs and is unlikely to be disruptive as relatively increased numbers of foreign investors to join the
few market participants use non-domestic ETFs. two markets as lenders. As more attention is focused
Taiwan has managed to escape any restrictions on on Asia as a region, securities lending is likely to
short-selling, but a problem in the Taiwanese market become a more popular and widely-used option. Z
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MARKETS
Market Profile:
Australia
Giselle Awad, senior vice president, eSecLending
Asia Pacific, looks at the current state of the
Australian securities lending market
Globally securities lending is (ASIC) and market participants The seminar focused on
a multi-trillion dollar business, have improved the regulatory and bringing together various
generating billions of dollars for disclosure framework surrounding independent participants who
beneficial owners annually. both securities lending and short presented unbiased data with
More importantly, it plays a key selling activities. the objective of educating and
role in providing liquidity and These changes were demystifying the topic.
contributes to the efficiency of implemented with the goal of In addition, ALSA, PASLA,
financial markets. promoting greater transparency. RMA and ISLA are working
The economic downturn had a However, while stability together with the goal of sharing
significant impact on the securities is increasing, the demand to information and facilitating best
lending industry, in particular borrow Australian securities practices within the industry.
in Australia it was characterised from beneficial owners currently ASLA has also made a concerted
by extensive short selling bans, remains subdued as borrowers effort to actively engage both
regulatory changes and negative are initially utilising their internal the regulators and the press to
press. supply and offshore borrowers are help address any misconceptions
For beneficial owners familiarising themselves with the specific to the local market.
participating in securities lending new rules.
it highlighted the importance of As participants develop a
understanding their securities Even with these reporting deeper understanding of the
lending programmes, and while changes both regulators and industry, they are increasingly
a politically sensitive topic for superannuation funds are still recognising that securities
some time, as a whole it has now actively seeking more information lending programmes should be
come be recognised as any other about securities lending. treated with the same level of due
investment mandate with its own As the industry continues diligence and understanding as
risk/return profile. to evolve and participants any other investment decision
increasingly recognise securities and that funds should have a
Certainly since late 2009 there lending as an investment function, comprehensive understanding of
has been more stability and the importance of facilitating the risks and rewards inherent
optimism in the Australian market dialogue between the main in their programmes and feel
as evidenced by the lifting of industry constituents to help confident about proper oversight
short sale bans and the number dispel myths and gaining the and controls.
of beneficial owners re-entering benefit of various perspectives has Subsequently, they have been
the market after temporarily become essential. looking at ways to structure
suspending activity. Events such as the Securities their programmes going forward
In addition, new regulations Lending Seminar hosted by Data including the review of alternative
and reporting requirements Explorers, eSecLending and the providers and routes to market
implemented by the Australian Melbourne Centre for Financial in recognition of the industry’s
Securities Exchange (ASX), Studies, held in Australia last changing landscape.
Reserve Bank of Australia November, were designed to Beneficial owners, Australian
(RBA), Australian Securities educate, inform, and interact on and otherwise, are being more
and Investments Commission the topic of securities lending. selective in the opportunities in

Eastern Promise
Asia-Pacific has seen
some of the most exciting
developments in securities
lending over the past few
years, in both emerging
and developed economies.
GSL invites industry

practitioners and
beneficial owners from
across the region to its
latest ground-breaking
conference in Hong Kong.
Hear some of the major

names in the industry
discuss the pertinent
market issues.
To register visit www.GSL.tv/Asia-Pacific

For more information contact: Craig.McGlashan@2i.tv
The Asia Pacific Securities Lending Summit

Thursday, 16th September, 2010 Presented by
GSL |
Registration/Lunch 13:15 Global
Securities
Harbour Grand Hong Kong, Lending
MTR Fortress Hill Station
Hong Kong www.GSL.tv/Asia-Pacific
Lunch reception courtesy of AA_fullcolourU.eps Drinks reception courtesy of

ABN AMRO full-colour for uncoated paper
Width shield: 20 mm
Overlap: 0,05 mm
MARKETS
“Certainly since late 2009 there has

been more stability and optimism in
the Australian market as evidenced
by the lifting of short sale bans
and the number of beneficial
owners re-entering the market after
temporarily suspending activity”
which they engage. management process in generating meaningful intrinsic value while
As they review their alpha rather than an operational maintaining conservative risk
programmes, many are looking for service tied to custody which was parameters.
greater transparency, control and the historical norm. While the financial crisis had a
customised solutions built around Investment management profound impact on the securities
their unique risk parameters and committees are now reviewing lending market, we believe that
goals. securities lending more closely and the evolution of the industry that
Increasingly, they are coming to appreciate that with a has and will continue to occur as
viewing securities lending as an risk/return discipline, beneficial a result, is positive for the industry
integral part of the investment owners are able to generate as a whole. Z
From GSL.tv
The Australian Securities & Investments Commission (ASIC) began publishing aggregated short
positions on 22nd June 2010.
Australian short sellers have been required to report their short positions to the ASIC since the beginning of
June, during which time more than 570 short sellers lodged more than 65,000 positions.
The ASIC did not require short sellers to reveal their identity or their individual short positions, but instead
said that the aggregated data would help investors identify potential risk in stocks.
“Short position reporting provides a snapshot indication of the bearish sentiment towards a particular stock
at any point in time. It also indicates the amount of overhang in the stock that will need to be covered at some
point by short sellers purchasing shares,” the ASIC said in a statement.
“For investors, this information may indicate the risk involved in trading the stock. This reporting, comple-
mented by short selling transaction reporting and securities lending reporting (available from the Australian
Securities Exchange), provides greater transparency on short selling activity in Australia.”
The short position reporting can be found at www.asic.gov.au/short-position-reports

In Bloom?
GSL returns to Amsterdam
to debate how the Dutch
securities lending industry
has changed since
the 2009 summit.
Hear all the latest issues

affecting the sector, from
risk and reward to CCP,
collateral management
and liquidity.
Free for GSL Members,

Beneficial Owners
and Asset Managers
To register visit www.GSL.tv/Netherlands

The 2nd Annual

Dutch Securities Lending Summit
Thursday, 7th October, 2010
Presented by
Registration/Lunch 13:15
GSL |
Global
Securities
Hotel Okura Lending
Ferdinand Bolstraat 333

1072 LH Amsterdam www.GSL.tv/Netherlands
AA_fullcolourU.eps
Width shield: 20 mm
Overlap: 0,05 mm
Lunch reception Drinks reception

courtesy of courtesy of
SECURITIES LENDING INDUSTRY AWARDS
The inaugural Securities Lending Deutsche Bank was the big winner
Industry Awards proved to be a great on the night, scooping three awards,
success, the culmination of which including Best Equity Trading
was the Awards Dinner on 1st July at Capability – Multi-location Borrower.
the Dorchester London. Other success stories included
The event eSecLending,
was held
The UBS, Barclays
in support Securities Capital and
of Wooden Lending Nomura,
Spoon, the
Children's
Industry which each
picked up
Charity of Awards two awards.
Rugby, and The remaining
featured 2010 GSL prizes were
an auction shared
hosted by between
BBC Sport's Ian Robertson (pictured 11 firms with one a piece, including
below), who entertained the audience SunGard which was named
with his showbiz anecdotes. Technology Provider of the Year.
The goal of the award was to let the For a full list of winners and highly
industry vote to decide who it wanted commended firms, please see
to be the winner. www.GSL.tv/Awards

A Long Call
GSL comes to Zurich
to talk about the Swiss
securities lending market.
Hear all the latest issues

affecting the sector, from
risk and reward to CCP,
collateral management
and liquidity.
Free for GSL Members,

Beneficial Owners
and Asset Managers
To register visit www.GSL.tv/Switzerland

The Swiss Securities Lending Summit

Thursday, 21st October, 2010 Presented by
Registration/Lunch 13:15
GSL |
Global
Securities
Lending
TBA
Zurich www.GSL.tv/Switzerland
Lunch reception Drinks reception

courtesy of courtesy of
GSL SUMMITS
GSL Summit |
Global
Securities
Lending
The GSL series of summits continued apace through the last few
months, taking in three continents – Europe, North America and Asia.
April saw the German and French summits, with a more repo-focused
event in Frankfurt and a multi-lingual presentation in Paris.
The German Securities Lending and Repo Summit - 15th April
Despite a Icelandic volcano causing

part of the GSL team to be grounded
in the UK, the German Summit was
generally considered to have featured
some of the best debate so far, with
the panel on financing and liquidity -
moderated by Godfried de Vidts from
the ERC and featuring Arne Theia of
UniCredit, Gösta Feige of Clearstream
and Dirk Bruckmann of DWS Investment
– coming in for particular praise.
Also deserving of particular praise is
Mike Steinbrecher, who went above and
beyond the call of duty to ensure that
half the GSL team made it back to the
UK despite the prevailing ash cloud.
The French Securities Lending Summit - 22nd April
The following week in Paris, in the

opulent surroundings of the Centre de
conférence du Palais de la Bourse, saw
a three panel session. Jane Karczewski
(then of Deutsche Bank, now of Citi)
moderated a multi-lingual session on
demand, GSL editor-in-chief Roy
Zimmerhansl chaired a session on CCP
and GSL deputy editor Craig McGlashan
made his debut as moderator on the final
panel, which focused around supply.

Still on Ice?
As the hedge fund capital
of Europe, London is
ideally suited to talk about
securities lending demand.
Has demand come back to

the industry or are hedge
funds still cautious?
How will the various

regulations being touted in
Europe affect the industry?
Find out the answers at our

October London Summit.
To register visit www.GSL.tv/London

The London Securities Lending Summit

Presented by
Thursday, 28th October, 2010
GSL |
Global
Registration/Lunch 13:15 Securities
Lending
Four Seasons Canary Wharf
London www.GSL.tv/London
AA_fullcolourU.eps
Width shield: 20 mm
Overlap: 0,05 mm
Drinks reception
courtesy of
GSL SUMMITS
GSL Summit |
Global
Securities
Lending
The New York Securities Lending Summit - 20th May
Moving on to May, and GSL starting

spreading its news in North America for
the first time. At the New York Summit,
regulation was perhaps the most pertinent
topic of the day. Dennis Ferenz from the
New York State Insurance Department
was quizzed on advice his organisation
had given to beneficial owners on
securities lending levels earlier in the
year. In a separate panel, Steven Pesek,
a supervising examiner from the Federal
Reserve Bank of New York, provided a
presentation on his approach to regulation.
The Japanese Securities Lending Summit - 3rd June
Next to June and another new continent for

GSL – Asia, specifically Japan. Arguably GSL’s
most successful summit to date, the event saw
a huge turnout in the stunning surroundings of
the Park Hyatt Tokyo.
Topics included looking at trends in the
securities lending market worldwide and
relating this back to the situation in Japan,
while the Looking to the Future Panel
discussed where the industry is headed.
Delegates at the Japanese conference
were also treated to two presentations,
with Dr Chris Marshall, senior director of
risk management at SunGard Asia Pacific,
providing a presentation on the best practicies
in collateral risk management for securities financing, while Dominick Falco and Kirtes Bharti of PASLA presented a
piece that looked specifically at the securities lending situations in other Asian countries.
The Japanese Summit also provided another first for a GSL Summit, with onsite translators providing real-time
Japanese to delegates via headsets.

100
What are you missing?
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Oh, and iPad included.*
Free.
Tablet computers are a “game changer” says Rupert Murdoch; Goldman
Sachs analysts this month wrote a “frankly ecstatic” stock report on the
iPad noting “almost 70% of Hedge Fund CTOs plan to replace notebooks
with tablets”.
It is how we are all going to be getting news and information in the
future, so GSL have decided to offer the first 100 subscribers to our
new 3 year eMagazine membership package a free iPad (*16GB, Wi-Fi)
included in the subscription.
Subscriptions (GBP prices, see link below for USD and EUR offer)
1 year print magazine, Summit priority, GSL.tv full access = £249
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GSL SUMMITS
GSL Summit |
Global
Securities
Lending
The Canadian Securities Lending Summit - 10th June

With just enough time to stop back in
the UK for a breath, GSL was back over to
the west side of the Atlantic again for the
Canadian Summit in Toronto (10th June).
Marking the second summit in a row to be
held at a Park Hyatt, GSL continued its goal
of working with industry bodies within the
respective countries where summits are held.
Rob Chiuch, president of the Canadian
Securities Lending Association and vice
president, head of trading for global
securities lending at CIBC Mellon,
opened the summit with an overview
of the work that CASLA has been
doing with both industry players and regulators.
Elsewhere at the summit, Tim Smith, director for North America at SunGard Astec Analytics, picked
up from where he’d left off at the New York Summit by providing a market activity presentation, while
Tom McKeown, FinTuition North America director, marked his debut as a GSL panel moderator.
The Canadian Summit marked the end of a quick succession of summits for
GSL (not to mention the beginning of the World Cup) but the summer months
have been spent preparing for the rest of the summits from autumn 2010
onwards.
GSL is looking forward to bringing its innovative summit format to these new
locations and we hope to see you there too.
See coverage of all of the GSL Summits from 2010 and earlier, as well as full
details of upcoming summits, online at www.GSL.tv
Upcoming Summits:
GSL Asia Pacific Securities Lending Summit 2010 Hong Kong China 16 Sep 2010
GSL Dutch Securities Lending Summit 2010 Amsterdam Netherlands 07 Oct 2010
GSL Swiss Securities Lending Summit 2010 Zurich Switzerland 21 Oct 2010
GSL London Securities Lending Summit 2010 London UK 28 Oct 2010
GSL Boston Securities Lending Summit 2010 Boston United States 04 Nov 2010
GSL Middle East Securities Lending Summit 2010 Doha Qatar 10 Nov 2010
GSL Luxembourg Securities Lending Summit 2010 Luxembourg Luxembourg 02 Dec 2010

The
Annu
27
al RMA Conference on
th
Securities Lending
October 11–14, 2010 | Boca Raton Resort – The Waldorf Astoria Collection | Boca Raton, Florida
The ORIGINAL industry-wide conference sponsored by and developed by securities lending

and borrowing professionals for securities lending and borrowing professionals.
Panel discussions with Lenders, Planning to Attend:

Agents, Borrowers, Consultants, Visit the RMA website at
& Business Leaders include: www.rmahq.org/RMA/SecuritiesLending
• Global Short Selling Restrictions you can register, make room reservations
• Brazil, a Risk vs. Non-Risk Central and view the agenda.
Counterparty Discussion
Conference Co-Chairs
• Regulatory Issues
• Impact of Financial Reform James Lailey
Deutsche Bank
New this year!!! New York
Latin American Markets Tutorial
Alejandro Berney
A Comprehensive tutorial that covers Citi
Securities Lending in the Latin American New York
region and the issues facing both borrowers
and lenders
Instructed by Alejandro Berney,
GTS-Latam Sales Head, Citi
www.rmahq.org
800-677-7621
For Registration and Exhibiting For Sponsorship Opportunities
Opportunities contact Kimberly contact Loretta Spingler at
Gordon at (215) 446-4021, or (215) 446-4081, or email
email KGordon@rmahq.org. LSpingler@rmahq.org.
DIRECTORY
Consulting
David Little
Head of Securities Finance
david.little@rulefinancial.com
Rule Financial is a leading independent provider of business and IT services www.rulefinancial.com
employing over 270 people in the UK, USA, Spain and Poland. Our Securities
Finance practice is now the largest of its kind in London where we are 3 Bunhill Road, London,
fortunate to field an exceptionally well qualified and experienced team of EC1Y 8YZ32
securities finance professionals. +44 207 826 4444

28 West 44th Street, Suite 808,
New York, NY 10036
+1 212 231 8428
Securities Lending
Deutsche Bank
Direct Securities Services
Deutsche Bank’s Global Transaction Banking division, offers its clients access to a Contact:
growing domestic custody and clearing network which currently covers more than Tim Smollen
30 securities markets globally. We are dedicated to providing cross-border custody
services, fund administration, securities clearing and agency securities lending Tim Smollen
consistently in all markets to exceptional standards as part of our commitment to Deutsche Bank
support our clients’ success. Managing Director, Global Head of
Through offices in London, New York and Frankfurt, Deutsche Bank’s Agency Agency Securities Lending
Securities Lending team operates one of the world’s largest non-custodial agency Tel: +1 212 250 4611
securities lending programs offering institutional clients a comprehensive and Email: tim.smollen@db.com
efficient service for generating additional return on their fixed income and equity
portfolios in a low risk environment. www.tss.db.com
Deutsche Bank has been recognized in Global Custodian’s Securities Lending tss.info@db.com
Survey 2010 achieving “Top-rated” status in a number of categories. It was also
the highest scoring regional provider in Europe, the highest scoring provider in the
Multi-Provider category and obtained 34 Best in Class awards.
eSecLending is a leading global securities lending agent servicing sophisticated in- Contact:
stitutional investors worldwide. The company’s approach has introduced investment Christopher Jaynes, Co-CEO
management practices to the securities lending industry, offering beneficial owners
an alternative to the custodial lending model. Their philosophy is focused on provid- Tel: US +1 617 204 4500
ing clients with complete program customization, optimal intrinsic returns, high
touch client service and comprehensive risk management. Their process is to begin Address: 175 Federal Street
each client’s program with a competitive auction to determine the optimal route to 11th Floor, Boston, MA 02110, USA
market for their portfolios or asset classes whether it is via agency exclusives or tra-
ditional agency lending. This differentiated approach achieves best execution while Tel: UK +44 (0) 20 7469 6000
delivering their clients with greater transparency and control, allowing them to more Address: 1st Floor, 10 King William
effectively monitor and mitigate risks. Additional information about eSecLending is Street, London, EC4N 7TW, UK
available on the company’s website, www.eseclending.com. Email: info@eseclending.com
Web: www.eseclending.com
Chris Doell
Northern Trust Corporation (Nasdaq: NTRS) is a global leader in delivering innova-
Senior Vice President
tive and customized Securities Lending programs to clients whose assets are cus-
Head of North American Securities
todied at Northern Trust and elsewhere. Northern Trust Global Securities Lending is
Lending Client Service
a leader in the industry, operating trading centers throughout the United States, Eu-
+1 312 444 7177
rope, Canada and Asia to take advantage of markets throughout the world 24-hours
Sunil Daswani
a day. Northern Trust’s Securities Lending program is consistently recognized as a
Senior Vice President
top lender; continuously outperforms the RMA’s Aggregate Composite; holds top
Head of International Securities
positions at industry organizations; provides superior relationship management and
Lending Client Service
technology; and maintains a strong 28-year track record.
+44 (0)20 7982 3850

DIRECTORY
Technology
C: Judith McKelvey 4sight Financial Software is a leading supplier of innovative software solutions to the
T: +44 (0) 207 043 8319 Securities Finance, Settlement & Connectivity markets with offices and clients world-
E: judith.mckelvey@4sight.com wide. 4sight Securities Finance (4SF) is a flexible modular solution that empowers
C: Jason Hayes financial institutions of all sizes, from the smallest direct lender to the global custodian,
T: +1 416 548 7922 broker or intermediary on an agency or principal basis. 4SF contains market leading
E:jason.hayes@4sight.com functionality that provides greater automation, faster trading, improved risk man-
C: Peter Sanders agement, and enhanced relationships with clients and counterparties. It supports
T: +61 (0) 2 90378416 borrowing, lending, repo, swaps and collateral management across the equity and
E: peter.sanders@4sight.com fixed-income markets and provides 24 hour continuous operation, inter desk trading,
W: www.4sight.com a ‘global book’, real-time value dated position keeping and a powerful web reporting
module, allowing full front to back office processing.
A:EquiLend Europe Ltd.

14 Devonshire Square, EquiLend is a leading provider of trading services for the securities finance industry.
London EC2M 4TE EquiLend facilitates straight-through processing by using a common standards-based
UK protocol and infrastructure, which automates formerly manual trading processes.
T: 44-207-426-4426 Used by borrowers and lenders throughout the world, the EquiLend platform allows for
C: Michelle Lindenberger greater efficiency and enables firms to scale their business globally. Using EquiLend’s
E: michelle.lindenberger@ complete end-to-end services, including pre- and post-trade, reduces the risk of
equilend.com potential errors. The platform eliminates the need to maintain costly point-to-point
A: 17 State Street, 9th Floor connections while allowing firms to drive down unit costs, allowing firms to expand
New York, NY, 10004 business, move into different markets, increase trading volumes, all without additional
T: US- +1 212 901 2224 spend. This makes the EquiLend platform a cost-efficient choice for all institutions,
regardless of size.
Eurex is one of the largest derivatives exchanges and the leading clearing house in
W: www.eurexseclend.com Europe. Wherever you are located, we provide you with access to the benchmark
T: +41 58 854 2066 futures and options market for European derivatives. Eurex also offers short term fund-
F: +41 58 854 2455 ing products, such as Eurex Repo. Eurex Repo is among the forerunners in provid-
E: info@eurexseclend.com ing integrated trading and clearing for repo transactions. Eurex’s latest innovative
Eurex Zurich Ltd., marketplace is called Eurex SecLend. Eurex SecLend. Europe’s leading investment
Selnaustrasse 30, banks participate as borrowers in the Eurex SecLend marketplace, acting as principal
Zurich, CH-8021, brokers, dealers and intermediaries. They all benefit from Eurex’s leading state-of-the-
Switzerland art trading and processing services. For Eurex, service and technology innovation is
not just a buzzword. New trends are being transformed into inventions through the
adoption of advanced trading practices.
Find out more on www.eurexseclend.com.
T: +44 20 7220 0961 Pirum provides a full suite of automated reconciliation and straight through processing
F: +44 20 7220 0977 (STP) services supporting Operations within the global securities finance industry. The
C: Rupert Perry company’s on-line SBLREX service encompasses daily contract compare, monthly
E: rupert.perry@pirum. billing comparison, mark-to-market & exposure processing, pending trade compari-
com son, income claims processing and custody reconciliation. Subscribers to Pirum’s
A: Pirum Systems services significantly increase their operational efficiency and reduce their risk by
Limited using Pirum’s solutions, as staff are able to focus on fixing the exceptions instead of
4 Eastcheap using their time to check and process routine business. These automated processes
London, EC3M 1AE are more scalable and risk controlled too, allowing significantly higher volumes to be
W: www.pirum.com managed without corresponding increases in operations headcount.
Visit SunGard at With annual revenue of USD5 billion, SunGard is a global leader in software
www.sungard.com and processing solutions for financial services, higher education and the
public sector. SunGard also helps information-dependent enterprises of all
types to ensure the continuity of their business. SunGard serves more than
25,000 customers in more than 50 countries, including the world’s 50 larg-
est financial services companies.

DIRECTORY
Featured Firm
BNP Paribas Securities Services
BNP Paribas Securities Services is a global bank that provides bespoke lending programmes to its
custodial and non-custodial clients across all time zones. We have a wide range of securities lending
and borrowing solutions to choose from.
We offer our clients 3 routes to market: -
• a full agency lending programme;

• a principal programme; and
• a combination of both of the above.
We accept a broad range of high quality collateral on behalf of our clients, being cash and non-cash
(equity & fixed income).
Clients can select how they wish to manage their cash collateral, by choosing to: -
• invest on deposit with BNP Paribas;

• re-invest in Money Market funds within the BNP Paribas Group; or
• re-invest with alternative Money Market funds of the client's choosing.
The strength of our balance sheet coupled with our well known culture of prudence is reflected by
one of the lowest CDS spreads in the industry. We continue to optimise returns for our clients within
a safe and controlled environment.
Sarah Fotsch
Global Head of Securities Financing
BNP Paribas Securities Services
55 Moorgate
London EC2R 6PA
United Kingdom
Tel: +44 (0) 207 595 3559
http://securities.bnpparibas.com

You’ve got
questions Did securities lending participants remain in their
programs throughout the financial crisis? Can risk
factors be sufficiently mitigated? Is securities lending
viable in today’s dynamic market?
RBC Dexia can provide the information you need to

help unravel the intricacies of securities lending.
For securities lending insights, access our essential

guide, Demystifying Securities Lending and our
quarterly Market Update, available at rbcdexia.com/sl.
For more information,
please contact
Blair McPherson
Head, Technical Sales
Market Products & Services
+44 (0) 20 7029 7812
blair.mcpherson@rbcdexia.com
Your ambition. Our purpose.™
RBC Dexia Investor Services Limited is a holding company that provides strategic direction and management oversight to its affiliates, including RBC Dexia
Investor Services Trust, which operates in the UK through a branch authorised and regulated by the Financial Services Authority. All are licensed users of the
RBC trademark (a registered trademark of Royal Bank of Canada) and Dexia trademark (a registered trademark of Dexia Banque Internationale a Luxembourg)
and conduct their global custody and investment administration business under the RBC Dexia Investor Services brand name. ™ Trademark of RBC Dexia Investor
Services Limited.

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GSL ISSUE 09 Q3 2010

GSL ISSUE 09 Q3 2010

The Central Question

Plus: US Regulation update Annual Membership

As a leading securities lending agent, we C E L E B R AT I N G

incorporate investment practices such as #1 Rankings - 2010, 2009, 2008

the use of specialists, multiple-managers,

eSecLending provides services only to institutional investors and

eSecLending (Asia Pacific) - Registered office of Securities

2 | Global Securities Lending Magazine | 2010

When challenging markets put pressure on investment returns, it’s important to

For more information, visit www.statestreet.com/securitiesﬁnance.

©2010 STATE STREET CORPORATION 10-SGM05150710

50 | Australia same firm for

2i USA, 410 Park Avenue,

ISSN 1759-0728 Printed in the UK

4 | Global Securities Lending Magazine | 2010

News Round-up Top industry stories at deadline.

6 | Global Securities Lending Magazine | 2010

Securities Finance Focused on automating post-trade processes in the

Our clients benefit from increased processing efficiency,

The US Securities and Securities Lending

10 | Global Securities Lending Magazine | 2010

For more information visit:

James Slater, CIBC Mellon

12 | Global Securities Lending Magazine | 2010

2010 | Global Securities Lending Magazine | 13

The Central Roy Zimmerhansl examines the

14 | Global Securities Lending Magazine | 2010

2010 | Global Securities Lending Magazine | 15

that services the entire trading community. We are

16 | Global Securities Lending Magazine | 2010

The state-of-the-art IT solution for:

COMIT AG, Pflanzschulstrasse 7, CH–8004 Zürich, Phone +41 (0)44 298 92 00

The GSL New York

18 | Global Securities Lending Magazine | 2010

2010 | Global Securities Lending Magazine | 19

how to manage government debt as exchange platform. We’re not

20 | Global Securities Lending Magazine | 2010

EU Short Selling Regulation

22 | Global Securities Lending Magazine | 2010

From all of us in the Euroclear Collateral Management Team:

Frank Reiss frank.reiss@euroclear.com – +32 2 326 1586

• to provide warning signs of a build up

As these goals are quite distinct and not

24 | Global Securities Lending Magazine | 2010

BondLend securities finance technology solutions free

BondLend trading and post trade services enhance resource

US and Asia markets

26 | Global Securities Lending Magazine | 2010

"Some clients, for

Providing flexibility and enhanced oversight

2010 | Global Securities Lending Magazine | 27

eSecLending 10-year timeline

Founded as stand-alone entity

2000 2001 2002 2003 2004 2005

28 | Global Securities Lending Magazine | 2010

product tied to custody, rather than an investment product,” she says.

$400bn av. lendable assets

2010 | Global Securities Lending Magazine | 29

Chris Jaynes' key features of a

30 | Global Securities Lending Magazine | 2010

Asset Servicing | Asset Management | Wealth Management