Our Insights

Canadian Securities Lending Association (CASLA) Annual Conference

Canada remains a global leader and strong performer in an evolving securities lending industry

The Canadian securities lending industry exhibited strong performance in 2016 and into the first quarter of 2017, as other regions around the globe saw their results soften. Canada's positive growth was among the key issues and trends discussed at the Canadian Securities Lending Association (CASLA) conference in June 2017.

The full-day conference included industry representatives from across the globe, bringing together panels and presentations to explore the state of securities lending worldwide. Discussion at the CASLA conference focused around three key themes:

  • the strength of Canada as a "bright spot" in securities lending globally
  • the proliferation of securities lending regulation worldwide and industry response
  • the potential impact of new technologies and approaches in securities lending

Canada bucks global trends

Canada's record of performance makes the country a "bright spot" in the industry

Canadian revenue results for the first quarter of 2017 were up 13 percent compared to the first quarter of 2016, in contrast to other regions. The US, Europe, and Asia-Pacific experienced falling returns over the same period. Canada's record of performance as a centre of securities lending makes the country a "bright spot" in the industry. Canada's performance "looks great in light of all of the other downturns we've been seeing in fees and revenues globally," commented a conference presenter. While the US is the world's largest securities lending market and generates the "lion's share" of revenue, Canada is number two.

Key insights

  • The recent performance of Canada's securities lending industry runs counter to global trends, with industry revenues increasing domestically while performance in other regions has softened
  • The softening in the global securities lending industry is tied to a decrease in equity lending, which saw significant year-over-year declines although fixed income lending increased
  • The importance of continuing to educate market participants about the potential of securities lending will remain paramount in a swiftly-evolving industry that is subject to complex and changing regulation

Regulation spurs innovation

Many of the panelists noted the continuing growth of regulation in the securities lending industry but added that the environment of regulation is also spurring innovation. Industry participants are seeking new solutions to meet regulatory requirements, together with client needs. "The good news is that we're still here," said a panel member, "and the alphabet soup of ratios we're required to use in running our business has caused us to tweak our models, examine how we manage our balance sheet, and make sure we're serving our clients better and maximizing return while meeting client needs." 

Technology brings "waves of change" to securities lending

Conference participants also discussed the growing role of technology in securities lending. They touched on examples like blockchain, which was developed as a form of digital ledger in which cryptocurrency transactions are recorded chronologically and publicly.

Blockchain technology was originally created to enable the anonymous exchange of digital assets, such as bitcoin. Its potential use today spreads beyond cryptocurrencies to the transformation of how assets are exchanged electronically, including in securities lending, by removing the need for a central authority to verify trust and the transfer of value.

Central counterparty clearing was identified as an area which may impact the future growth and development of securities lending beyond the European markets

Similarly, central counterparty clearing, a common method by which securities transactions are facilitated in European derivatives and equities markets, was identified as an area which may impact the future growth and development of securities lending beyond the European markets. A central counterparty clearing house, or CCP, may be used by a major bank to provide efficiency and stability to transactions. When transactions are cleared and settled through a CCP, credit risk is shifted to the CCP from buyers and sellers.

Both digital ledgers and CCPs demonstrate the ways in which securities lending transactions are aided around the globe – and their use may transform elements of the securities lending industry, noted panel members.

In his closing remarks to conference presenters and participants, Donato D'Eramo, President of CASLA and Managing Director, Securities Finance, RBC Investor & Treasury Services, commented, "The securities lending industry is filled with change, some of which may be frustrating, but which also presents 'open doors' for industry participants and clients alike." From a CASLA perspective, he said, the association's intention is to continue to work on education with all stakeholders and clients in the securities lending industry, and "equally to figure out how to become more engaged with everyone who brings value to the industry – lenders, broker-dealers, banks and other stakeholders – so we can continue to build on the work we've already accomplished."

Source

  1. Canadian Securities Lending Association Annual Conference (June 6, 2017)