Making options count in securities lending – Data Explorers

Thu, 2011-10-13 17:20

Let it not be said that you can’t make money in securities finance when a lack of M&A and low interest rates are the order of the day. At this point in an economic cycle, opportunities are thrown up by the kinds of corporate actions that companies favor when times are tough. Share buybacks are in full swing at the moment with a 200% increase in value year on year in Europe alone. There have been EUR 120bn worth of share recapitalizations this year in Europe and this is already double that of last year. Given the slowdown in global trade, there are likely to be many more rights issues and recapitalizations before the year is out. We were joined by Societe Generale’s Richard Deroulede to find out how beneficial owners can make the most of these opportunities.

Rights issues, scrip dividends and share buybacks offer shareholders choices. Such choice leads to the creation of an “embedded option” and these things set pulses racing for those working in banks with strong derivatives departments. As an asset owner, you can decide how pro-active you want to be when it comes to maximizing these moments. But, if you so chose, you could leverage the capability of the securities lending market to make more money.

In fact for specific instances, for example when the premium on offer for more shares is 10% or more below the current share price, a beneficial owner can get up to 40 bps on the dividend if they are savvy about exploiting every aspect of their option. The current Bouygues (EPA:EN) share buyback is one such example that offers a premium of more than 2% of the notional. Richard argues that this strategy can be particularly attractive to those asset managers running index tracking funds.

The original article contains a video interview with SocGen’s Richard Deroulede.

Related Posts

Previous Post
Bloomberg live on tri-party repo connectivity – Bloomberg
Next Post
Great blog post on Finextra: collateral management and systematic risk

Fill out this field
Fill out this field
Please enter a valid email address.

X

Reset password

Create an account