Stock Lending Today - An Industry Under Siege!

CESR Consultation on Short Selling Disclosure

Yesterday CESR produced a consultation paper proposing a uniform approach in Europe for short selling disclosure.  You can access the paper by clicking here or the press release here.

I haven't had a chance to read the paper (yet more documents piling up for holiday reading) but the headline is that they are suggesting that a two tier reporting requirement should be implemented.  The first level - private disclosure - would require that the short seller disclose to the regulator of the market where the stock is most liquid when a short position crosses 0.1% of the issued share capital.  There would be a further stepped reporting requirement of 0.10% increments.  Once a short position has passed the 0.50% level, CESR is proposing  public disclosure.  What goes up can also go down, so there is a similar requirement to report as the short position decreases.  Importantly, CESR also wants to include both exchange traded and OTC derivatives when calculating the net short position. 

This makes the CESR proposals different from other operating regimes.  First, it is wider in scope than the UK regulations which only addresses financial stocks.  Second, the reporting thresholds are lower than that of the UK, but the  same as recently introduced in Greece.  The idea of a private level and a public level is interesting.  The most significant divergence from other proposals and regulations is the concept of a net position including other instruments.  I need to think this through a bit and speak to some people who are smarter than me, but it is an interesting idea. 

My thoughts at the moment:

• 0.10% is too low.  It will create a substantial additional reporting workload for a questionable result.  The key point to remember is that the short selling bans did nothing to support share prices and there is credible evidence that the bans damaged markets and investors.  So what value is there in such a low trigger point?
• Few have any problem with reporting positions to the regulator as a concept, but it needs to be a workable level.
• Many do have problems with making their trading positions public.  Why should they be required to show their hands?  Why is the disclosure of short positions so much more important than the disclosure of long positions - if the public needs to know, then it should apply symmetrically.  I will again briefly mention what happened with L&G shares in February this year.  Public disclosure of positions helped generate additional profits for the short seller and did nothing for the public.
• The idea of netting against other positions is very interesting, but seems like it will be difficult to define and  must inevitably generate very onerous additional calculation, reporting and compliance requirements.  It would eliminate those positions where a direct hedge takes place, but would it include different share classes, related instruments, long index futures vs some short underlying positions, offset positions from different trading books or locations, etc. etc.

The CESR consultation period on this proposal goes until 30 September 2009.

Securities Lending Conferences Survey Results

Last week I posted a survey on the subject of securities lending conferences.  I wanted to get a feel for peoples thoughts, views and experiences.   I have summarised the results below.  There were 28 people that took the time to complete the survey, so while it is not scientifically accurate, I think it is representative of the comments I hear directly from people.  Thanks to everyone that took part.

Respondent Locations
People from 11 different countries responded with UK and US each posting 9 answers, 2 from the Netherlands and 1 respondent each from 8 other countries.

How many conferences have you attended in the past two years? 
Most people fit into the one conference per annum category, and it seems that the majority will keep it at that level.  An equal number plan on attending more conferences in the future as there are people planning on going to fewer events.

Rank in order the reasons why you attend conferences.
People clearly attend conferences for the opportunity to meet and greet counterparties and prospective counterparties.   61% of the respondents looked at general networking opportunities as the top priority in attending conferences.  38% told us that centralised sales and relationship meetings were the main reason they attended.  Interestingly, content was important, but not the primary driver for showing up at conferences.  I’m not surprised. I’ve always said that you can always get more information about specific subjects directly from one on one meetings than you will find out about at a panel session.  However, I firmly believe that the events can be useful for identifying the key issues for the industry.  Properly constructed, they can highlight the important topics of the day.

One person made the comment that “filling the diary” is an issue.  The feeling is that too many people feel compelled to have a full schedule before getting to a conference and that this reduces the opportunity to have ad-hoc meetings and discussions.  I concur with this thought.  This conference was one of the best ISLA/RMA conferences I’ve been to, and it has certainly been the least structured for me.  The lesson: leave yourself some slots for unplanned meetings. 

Prioritise the issues conference organisers should focus on when putting together events.
Approximately 70% of respondents said that keeping abreast of industry trends was their top priority or an important reason for attending conferences.  It is therefore not surprising that 58% said that Subject Content was the most important issue for conference planners to think about.  Given the current economic environment it is also no shock that the Cost of Attendance was either the top or second most important factor for 76% of attendees, similar to the combined top and second priority score for Subject Content.

Other comments
Some interesting views came from the audience.  There was a consistent commentary that people wanted to see a wider range of topics and products covered, rather than updates on the “same old subjects”.  There were a couple of recommendations for fewer but more in depth sessions.  There is a feeling from these people that a combination of more detailed sessions with more open networking time would be a winner.  One of the reasons why some have asked for a different group of speakers is that the major players are often the leading conference contributors but aren’t necessarily representative of the industry as a whole.  Virtually everyone that left a comment was positive about the networking aspect of the ISLA/RMA conference with 92% saying that the conference was either Very Good or Satisfactory value for money. 

Thanks again to everyone that took the time to respond to the survey.  I will take your comments into account when I am contributing to future conferences.

New Securities Lending Twibe

In my on-going effort to try out every new form of media, I have created a "twibe". 

What is a twibe?
A twibe is a group of Twitter users interested in a common topic who would like to be able to communicate with each other.  It's a really easy way to create a central place for news and comments that all relate to the securities lending business - be it securities lending directly, hedge funds, prime brokerage, short selling ... you get the idea. 

How do I join?
If you are a member of twitter, all you need to do is tweet the URL: http://twibes.com/securitieslending and you will become a member.

How do I tweet to the twibe?
If your tweet is something that you think will be of interest to the securities lending community, then just add the acronym "sbl" somewhere in your tweet and it will be picked up automatically.  The twitter search rules mean that it wont necessarily show up immediately, but should be there within 24 hours - although in my experience, it has been only a matter of minutes.

The Bottom Line?
Over time, this should develop into a central repository for interesting news and updates that is available to everyone.   So please join and contribute interesting stuff!  And as always, pass this on to others - the more, the merrier, and more useful.

P.S.
Later this weekend I will be posting the results of the Conferences Survey I put up last week.