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Nordic securities lending roundtable

28 November 2016


Nordic securities lending experts gathered in Stockholm to discuss the rise of specials and term trades and to look ahead to the impacts of SFTR and CCPs

Read more: Nordic SFTR specials

PARTICIPANTS

  • Chair: Andrew Neil, associate editor, Global Investor/ISF
  • Nancy Allen, global product owner of DataLend
  • Steve Kiely, head of securities finance sales and relationship management – EMEA, BNY Mellon Markets
  • Jørgen Krog Sæbø, chief treasurer, Folketrygdfondet
  • Stevce Mojanovski, equity finance trader at Danske Bank
  • Dan Murphy, global head of equity finance, Stockholm, SEB
  • Per Strömberg, equity finance, Handelsbanken Capital Markets


Andrew Neil: What have agent lenders been doing to maximise client revenues in the Nordics?

Steve Kiely: The Nordics are not that dissimilar from the rest of continental Europe. We're concentrating on high-yielding stocks – intrinsic value lending. Most are focused on the 20% of the loans that make up 80% of the revenue.

We're also encouraging clients to enter into a term contracts so they can preserve their liquidity and get that extra pick-up. Collateral is not king any more. Collateral is only queen, term is king.

Neil: Jørgen, do you see these trends within in your own lending programme?

Jørgen Krog Sæbø: Yes, absolutely. Term trades are increasingly popular and profitable. It used to be one-month and now its three-month term trades. We’re definitely seeing more evergreen structures. It may not be a big proportion of our trades, but we're seeing increased demand for them.

Per Strömberg: I agree. When it comes to maximising revenues we do see the market turning towards longer term trades. It started with the term on cash for different reasons, but now it's more term equities and term fixed income.

Neil: Are these trends reflected in the data you have, Nancy?

Nancy Allen: It's interesting when we look at the Nordics and how the region fits into the global securities lending picture. As of September, the average lendable securities in the region totalled $282bn daily, which is approximately 7% of $3.6trn lendable European securities. To date, the average on-loan in the Nordics is approximately $34bn, which is again roughly 7% of the on-loan that we've seen across Europe.

In the second half of 2015 the Nordic market was roughly 60% to 65% general collateral (GC). So far in 2016, that percentage has dropped to 30% on average, so we've definitely seen an increase in specials trading this year.

Dan Murphy: The Nordics has a lot of specials to offer compared to mainland European countries, which are concentrated in certain sectors and certain markets. The returns are a result of very name-specific and sector-specific stocks. In Finland its construction and mining. In Denmark we’ve seen shipping and construction. Norway has produced energy specials and in Sweden it’s been IT and industrials. Fingerprint, for example, has generated significant revenue for those lending out positions.

You'd expect most mainstream indexes to be filled mainly with GC stocks, but probably only about 50% of the names in the HEX Index could almost be guaranteed to be GC borrows, the rest of them are specials. Participants in this region are in quite a privileged position.

Kiely:2016 has been a specials-driven revenue year. We've done particularly well in the US. Although volumes have shrunk somewhat, the specials have made up the revenue. In part, the volume declines are due to equity volatility at the start of this year and shrinking balance sheets in general which has subdued equity finance demand.


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