Securities lending risks increase in 鈥渇light to safety鈥� environment
05 August 2011 London
Image: Shutterstock
Risk managers are warning of the impacts on the repo market of weakening sovereign prices in certain European countries.
鈥淔ew areas are more technical, nichey鈥�, or esoteric than securities lending,鈥� wrote Mitchell Shames, partner at Harrison Fiduciary. 鈥淚f plan sponsors want to partake of the benefits of securities lending, then they must really understand the risk.鈥�
The last time securities lending programmes froze, it was on the back of mortgage-backed securities and related derivatives. This time, it could be sovereign debt, he notes.
Shames recommends scrutiny of two risk situations: short-term paper held by collateral pools and collateral posted by broker-dealers.
The role of the repo market has been brought into sharper focus since wrangling over raising the US debt ceiling increased the perceived risk of US Treasuries - yesterday, interest on T-bills turned negative. And BNY Mellon announced fees for deposits over $50 million in response to a sudden rise in cash holdings, the FT reports.
In Europe, sovereign debt contagion fears over Spain and Italy against a backdrop of equities selling off has prompted the European Central Bank to intervene, according to various media reports.
The Swiss National Bank announced a surprise cut in interest rates to almost zero and committed itself to a renewed round of quantitative easing to stem the appreciation of the Swiss franc, wrote Stefan Angele, head of investment management, Swiss & Global Asset Management.
鈥淔ew areas are more technical, nichey鈥�, or esoteric than securities lending,鈥� wrote Mitchell Shames, partner at Harrison Fiduciary. 鈥淚f plan sponsors want to partake of the benefits of securities lending, then they must really understand the risk.鈥�
The last time securities lending programmes froze, it was on the back of mortgage-backed securities and related derivatives. This time, it could be sovereign debt, he notes.
Shames recommends scrutiny of two risk situations: short-term paper held by collateral pools and collateral posted by broker-dealers.
The role of the repo market has been brought into sharper focus since wrangling over raising the US debt ceiling increased the perceived risk of US Treasuries - yesterday, interest on T-bills turned negative. And BNY Mellon announced fees for deposits over $50 million in response to a sudden rise in cash holdings, the FT reports.
In Europe, sovereign debt contagion fears over Spain and Italy against a backdrop of equities selling off has prompted the European Central Bank to intervene, according to various media reports.
The Swiss National Bank announced a surprise cut in interest rates to almost zero and committed itself to a renewed round of quantitative easing to stem the appreciation of the Swiss franc, wrote Stefan Angele, head of investment management, Swiss & Global Asset Management.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities 麻豆影视传媒 Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities 麻豆影视传媒 Times
