25th Annual Conference on Securities Lending Summary
RMA’s Annual Conference on Securities Lending celebrated its 25th anniversary in San Antonio, Texas, on October 13–17, 2008. Although conference attendance was down from previous years—affected by unprecedented financial market events—securities lending and borrowing professionals from across the industry who attended the conference participated in several notable panel presentations. RMA wishes to recognize this year’s conference co-chairs for their work in coordinating the business program: Diane Shew, Head of Securities Lending Trading, Americas, Barclays Global Investors, and Rory Zirpolo, Managing Director, Credit Suisse.
Wednesday, October 15, the first full day of the conference, opened with welcoming remarks from RMA Committee on Securities Lending Chair Michael P. McAuley, Esq., Senior Managing Director, State Street Corporation, as well as remarks from both conference co-chairs. Immediately following their remarks, Mark Faulkner, Managing Director, Spitalfields Advisors, London, provided a review of the securities lending industry and an analysis of current market conditions. Faulkner discussed the impact on both clients and the markets of the financial crisis, in both the United States and globally, and took a look at the industry response. He addressed the challenges facing the industry (e.g., rebuilding client trust and confidence, engaging policymakers globally, getting the message across to the media and clients, reinvesting in tradable products) and concluded with his view of the future (e.g., consolidation will continue, more explicit pricing of services, exclusives becoming more flexible).
Following this discussion, the first full panel of the day was the Industry Leaders Panel, with a lively give-and-take discussion between the moderator and panel members, who answered a series of questions on the impact of the SEC’s decision to stop short selling, the Lehman Brothers collapse, the potential tax impact of buy-ins on taxable clients, and several other topics. The panel also answered a host of questions from the audience, including whether regulators will move to accept equities as collateral and if owners on the supply side will embrace equities as a form of collateral. Also, participants questioned panel members about the viability of a central counterparty—would it negate client trust? how will clients know with whom they are dealing?—and the role of the media in disseminating information about securities lending that causes panic and undue concern among clients.
Wednesday concluded with Keynote Speaker Stephen J. Dubner, award-winning author and journalist who co-authored, with Steven D. Levitt, Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. In a lively and humorous presentation, Dubner offered a light-hearted look at the world of economics and the mind of the economist. He told several entertaining stories about conventional wisdom, altruism, and monkey prostitutes. (You had to be in the audience to really appreciate the last one!)
Thursday opened with the Market Outlook Panel, featuring three senior economists and strategists from leading financial institutions discussing current credit and global markets. In a move that startled even the panelists, all three economists agreed that the U.S. economy is indeed in a recession and anticipated several quarters of negative GDP growth ahead. They said fiscal and monetary policy needs to be more creative than ever before, and that the “notion of recovery is so far out into the future it’s not even in the vocabulary.”
The Current Events Discussion—SEC Emergency Rules; Impact on the Industry, Did They Work?—provided a review of some of the recent SEC rules and their effect on the industry. There has been some academic research done in the area of short selling to date, which revealed that borrowing-constrained stocks adjust more, especially to bad news. The implications of this research in this presentation are that since short-sale constrains tend to slow the price adjustment process, removing short sale constraints would help prices reflect true values. However, the research also showed that with different sources come different answers, and the research was done at a time when the industry was going through a financial crisis. Also, panelists were very concerned about South Dakota Ballot Measure/Referendum Measure 9, an initiative to make certain securities practices and transactions unlawful. This measure, if passed, would prohibit short selling for broker-dealer firms registered in South Dakota. Panelists urged all broker-dealers to discuss this referendum with their clients.
Two panels—Exchange-traded Funds (ETFs) and Current Events–Buy-ins—closed out Thursday and the conference. Panelists discussed ETF strategies, its key players, and how ETFs, are currently used. ETFs were created in 1993 and originally targeted for institutions as a low-cost substitute for index funds. They offer low-cost, tax-effective exposure to mutual funds, although they are still in their early stages. In discussion buy-ins, panelists talked about the SEC emergency order and close-out provisions. Again, here, much of the conversation centered on short selling and the South Dakota ballot Measure 9.
RMA thanks everyone who attended the conference, and extends a special thank you to our sponsors and exhibitors for their contributions.
Click on the links below to view presentations given at the conference.
State of the Industry Update
Mark Faulkner (PDF)
Impact on Benefical Owners
Mark Faulkner (PDF)
Current Events Discussion – SEC Rules
Prof. Reed (PDF)
John Tabacco (PDF)
Current Events – Buy-Ins
Irv Klubeck (PDF)