Finadium report: asset managers on securities lending and collateral management

The sixth annual Finadium survey of asset managers uncovers asset manager thinking on securities lending programs, provides peer recommendations on program success including collateral options, and offers ideas on strategic directions for the securities lending market going forward.

Securities lending is no longer a silo unto itself, and lending decisions have impacts for asset managers across business lines. This report assesses the firm-wide reasons for lending and which rewards are worth what types and levels of risks in the current financial markets environment.

A healthy majority of large asset managers have embraced their securities lending programs to generate both revenue and liquidity, but challenges remain. For US firms, assessing cash collateral reinvestment options in the face of changing 2a-7 regulations and a zero interest rate environment may no longer be as easy as mandating an overnight repo only policy as this repo supply becomes more constrained. European UCITS providers are working to comply with European Securities and Markets Authority (ESMA) regulations on maintaining a fee split that is fair and reasonable while also assessing new cash and non-cash collateral options. Dividend arbitrage is expected to decline, but asset growth and entries into new markets and types of securities financing activities are expected to propel securities lending into its next phase of business evolution.

The Finadium annual survey of asset managers in securities lending moves past the basics of program management to look at the most complex issues in the market today. Our survey asked about regulations emerging from Basel III, the future of indemnification and revenue expectations going forward. For non-cash collateral takers, we investigate haircuts for equities and other non-traditional assets, especially as borrowers want to maintain cash and government bonds for other purposes.

This report should be read by securities lending and collateral managers at asset managers and insurance companies, as well as their custodians, agent lenders and other service providers.

This report is 44 pages with 28 exhibits. For more information and to see the table of contents, please visit the Finadium website here.

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