Finadium
January 2013

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Finadium’s 2013 survey of institutional investors looks at new opinions and trends emerging in securities lending programs and their associated collateral management activities. Driven by regulatory uncertainty, many institutions have upgraded their understanding of securities lending in order to enjoy a risk-adjusted, profitable investment activity. This report looks at important transitions occuring in the securities lending market including thinking about indemnification and how much risk institutions are willing to accept for securities lending returns.

This study relies on two pools of data. The first is a proprietary survey of institutional investors in North America, Europe and Asia conducted in late 2012, including public and private retirement plans as well as sovereign wealth funds. The second is the annual reports of US public plan sponsors. In total, we spoke with or gathered data from 100 institutions managing US$3.84 trillion in assets. The results of the study show revenues, fees and forward-looking expectations from a cross-section of beneficial owners in the securities lending market. The data also help explain how beneficial owners expect to change their programs going forward, and what this means for agent lenders, bank counterparties, hedge funds and market makers.

This report has been written for institutional investors and their service providers to provide insights into the market environment for 2013. For institutions, the report offers a peer-based analysis of securities lending and collateral management programs. For service providers, the report offers a candid look at the thinking behind a large and important client base. Where prior Finadium institutional investor surveys have focused more on service provider satisfaction and program management specifics, this report takes a bigger picture view of how lending fits into the world of institutional investment activity.

This report is 33 pages with 22 exhibits.

TABLE OF CONTENTS

■ Executive Summary

■ A Different Kind of Securities Lending Market
– Methodology

■ Opinions on Securities Lending
– Program Participation
– Revenues
– Fee Splits
– The Importance of Indemnification

■ Collateral Management in Securities Lending Programs
– Is Playing by the Right Cash Collateral Rules the Wrong Idea?
– Non-cash Acceptance and Risk Management

■ Future Expectations and Who Should Lend
– Dividend Arbitrage and Short Selling in Europe
– Securities Lending as a Liquidity Source

■ About the Author

■ About Finadium

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