Today marks the first anniversary of the launch of Stock Lending Today. I started the blog last year in response to what I viewed as ill-informed coverage of short selling and securities lending. If you think back to last summer, the SEC in the US had implemented a short-selling ban on financial stocks, but at the time, it was the only country to do so. The second reason I launched the blog was my feeling that the industry was at a critical point in the maturation process and there didn't seem to be an independent outlet for views to be expressed and challenged.
Within a month of launching SLT, Lehman had defaulted, AIG needed rescuing and there were major concerns raised about a number of other leading securities lending market participants. There was a veritable media frenzy and I think the subtitle of the blog - "An Industry Under Siege" was well-earned. Subsequently over 30 other markets implemented short selling bans or restrictions. A number of high profile lenders withdrew from the market either in whole or in part.
Politicians and regulators around the world struggled with the often conflicting challenges of protecting the integrity of the markets while striving to ensure that that companies and economies weren't unfairly targeted and attacked. Often, the need to be seen to be taking action was as important as the actions themselves. The confluence of events and circumstances in 2008 were unprecedented and as a result, no blueprint was available for reference. The former SEC chair, Christopher Cox would subsequently reflect that the imposition of the short selling bans was the biggest mistake of his career. Indeed, all the academic evidence suggests that investors were disadvantaged by the actions of regulators hoping to stabilise markets through restricted short selling rules.
The silver lining from those dark days is that the subjects of short selling and securities lending (now forever linked in the popular imagination) has survived the world's scrutiny and emerged with the recognition of the vital roles they play in the capital markets. While there are still outstanding issues, inquiries and discussions going on in many markets, they are with the clear objective of restricting inappropriate activities and embracing legitimate short selling ans securities lending.
The competitive landscape amongst industry participants has changed more in the past 18 months than ever before. The true winners and losers will not be known for perhaps another year at least, but there is undoubtedly more of a level playing field than ever before.
Market infrastructure is at an important crossroads with the future uncertain for electronic trading, central counterparties, integrated product structures and the technological changes that will drive the way forward.
All business activity is a function of supply and demand. Many of the institutional investors that make their securities available for loan are in a state of flux. Some have pulled out in whole or in part. Others had exited and later returned. The majority of lenders stayed the course and deserve considerable thanks from the agents, prime brokers and traders. (Although some would argue they had no choice but to stay in the game and may yet exit in future when their fortunes change.) The demand side of the market - the hedge funds and proprietary trading firms - have seen improved performances this year and all will be watching for whether this upturn is sustained.
So one year on, the business has survived the greatest onslaught it has ever experienced and emerged a little battle scarred and smaller than its peak levels of a couple of years ago - but still huge compared to where it was a decade ago.
I would argue securities lending is still under siege, but "siege" is now with a lower case "s" as opposed to the capital "S".
I'd like to thank all of my readers, contributors, commentators and survey/poll respondents over the past year for your time and comments, and I look forward to even more engagement in the year to come!
