Finadium
December 2011

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Alongside regulatory changes in global financial markets, the relationship between agent lenders and their borrower counterparties, particularly prime brokers, is evolving. Long-standing practices including lending among friends and the specials for general collateral trade have largely disappeared. In their place, agents and borrowers now focus on mutually beneficial economic arrangements that seek to maximize revenues fairly for both parties and their clients. All the signs point to a securities lending market that has left the shadows and now operates on much more rational economic grounds than five years ago.

As the move towards a more reasoned market continues, agent lenders have developed new metrics that support the differentiation of their borrower counterparties. While many major borrowers may look alike, enough important differences still exist to make some prime brokers better borrowers than others. The lender/borrower relationship is also evolving due to the repo for GC trade and other variations that meet bank needs for funding their balance sheets.

This report looks at the attitudes of agent lenders towards their borrower counterparties in equities across North America and Europe. The results of the report highlight the criteria that agents use to evaluate their borrowers and as a result, what will drive the market and provide advantages to borrowers in the coming year. It also provides inputs for agents looking to compare their views against their peers and borrower counterparties looking to better their position in the market.

This report should be read by large and small borrowers, agent lenders, beneficial owners, consultants and other advisors to lenders and borrowers in the equity securities lending market.

This report is 26 pages with 7 exhibits.

TABLE OF CONTENTS
■ Executive Summary

■ The New Relationship Model in Equity Securities Lending
– Agent Lender and Prime Broker Market Share

■ How Agent Lenders Differentiate Between Borrower Counterparties
– The Importance of Rerating
– Operations and Technology

■ Competition and Cooperation

■ The Repo for GC Trade
– Sizing the Trade
– Risks and Rewards

■ Future Developments for Agent Lenders and Prime Brokers

■ About the Author

■ About Finadium

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