Securities Lending Changes Ahead!

It’s been quite a week for news with respect to securities lending, so let’s look at a few of the issues.  I will be keeping an eye on each of these developments.

BGI

Last month CVC Capital announced a deal with BGI whereby it would purchase the iShares ETF business.  As I predicted when Barclays first declared it was interested in selling iShares, the deal did not include the securities lending business.  The terms of the deal were another example of Barclays’ excellent management team.  The same firm that refused to up the price when RBS stepped in to outbid them and then walked away from Lehman on the fateful September weekend only to jump back days later to buy the Lehman US business on the cheap, managed to secure a sweet deal with CVC.  The terms of the £3 bn transaction allowed Barclays to continue to search for a higher bidder for iShares for 45 days.  It now seems that there is considerable interest in the larger BGI business that press reports suggest could net as much as $12 billion.  Perhaps the biggest driver in the valuation leading to this huge price increase is the BGI securities lending business.  I'm sure it's gratifying for  BGI securities lending staffers to see their contribution making such a massive difference!

Deutsche buys Dresdner Agency Lending

The third party agency lending business of Dresdner Bank was purchased by Deutsche last week.  There has been a lot of speculation about this deal for a while and while the price has not been disclosed, it looks like a great deal for both sides.  From my conversations with people directly and indirectly involved, I know Deutsche has big plans for this solid veteran team that has successfully challenged other lenders while building their business. 

Does this Rally have Legs?

Not everyone thinks that the market has turned around and many remain sceptical.  Sharon Bell of Goldman Sachs noted last week that the amount of stock on loan in the UK and Ireland has fallen to a 5 year low.  I picked up the chart below from the FT and since they haven’t attributed it to anyone, I am assuming it is their chart.  During the rally the amount of stock borrowed has steadily and consistently declined.  This will mean that there will be little if any support for prices from short covering rallies.
 
Similar data comes from the US.  Short interest as at 30 April showed a continued drop, with NYSE reporting a 3% fall and Nasdaq 3.72% as compared to the previous period at mid-April. 

Greece lifts Short Selling Ban

From 1 June, Greece will allow short selling on the Athens Stock Exchange.  Traders must declare short positions and their broker must disclose and flag that the order is a short sale.  Further, shorts will be subject to an uptick rule that requires the order to be entered at a price higher than the last trade.  Further, short positions that exceed 0.10% of a company’s share float must be disclosed.  Once this threshold is reached, traders are required to report any subsequent changes to regulators.  The stock exchange will publish the short interest on a daily basis for each stock.  This is definitely a step forward, and better than a ban, but it will be interesting to see how traders adapt to the situation.  

P.S.  Final Countdown!

One month from today, the LCH.Clearnet CCP for SecFinex securities lending trades goes live.  I’ll revisit this in the coming days.