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SLTSECURITIESLENDINGTIMESISSUE04324.01.2012TUESDAYsecuritieslendingtimes.comNEWSINBRIEFEuropean turmoil causes lendersto run for collateral coverLong only investors who lend reducedtheir assets and exposure to sovereignbonds of risky economies while increasingtheir holdings in bonds of insulatedeconomies, reports Data Explorers.Clearstream and Strate GO liquidLUXEMBOURG 20.01.12Clearstream and South Africa’s CSD, Strate, announcedexclusive negotiations towards a collateralmanagement partnership at the 16th annual GlobalSecurities Finance (GSF) Summit held in Luxembourgfrom 18 to 19 January.It will allow the South African market to use Clearstream’scollateral management infrastructure, theGlobal Liquidity Hub, which operates on fully automatedbasis in real time, while the CSD’s clients couldhandle their domestic collateral holdings and exposuresmore efficiently without the need to move collateralout of the domestic South African environment.Stefan Lepp, member of the Executive Board of Clearstreamand head of GSF for both the ICSD and CSDbusiness, explains that the partnership will also allowthe South African CSD to collateralise securities lendingpositions in their home market and later leverageinternational assets held with Clearstream.“It is attractive because fragmentation is decreased,opportunity costs are lowered and back office efficien-INSIDE SECURITIESLENDINGTIMEScies are increased, that is some of the reason we have thisdemand in the industry for our Liquidity Hub GO (GlobalOutsourcing) product,” he adds.South Africa is the third market, after Brazil and Australia,to use the Liquidity Hub GO outsourcing servicefrom Clearstream. Speaking to SLT, Rohan Delilkhan,general manager of business development for Clearingand Settlement Services at ASX, said that this particularoutsourcing model was the best fit for the market becauseit included a knowledge exchange partnership inaddition to the benefits of maintaining assets at home,under local legislation.“It is beneficial to us that our partner can also inform usabout their experiences as a provider of triparty collateralmanagement services and as a cross border CSD,”Delilkhan notes. “And importantly, they don’t tell uswhat to do, but provide us with multiple ways in whichwe can solve any given problem which lets us work outwhat is most efficient within our own CSD technologystructure and how we can best meet domestic regulatoryrequirements.”readmore p3Securities lending market reaction to thelatest sovereign wealth crisis and downgradesshows that total supply of bonds inlending programs has decreased 9 per centin the three months to January, while therehas been a 7 per cent decline in loans.readmore p3Latest research highlights thatshort selling bans don’t workBans on short-selling in the eurozoneare unlikely to prevent share prices fromcontinuing to fall and could cause “moreharm than good”, according to a CassBusiness School study.In the largest study of its kind, ProfessorAlessandro Beber from Cass, and his coauthor,Marco Pagano from the Universityof Naples, examined the impact of the banon 30 countries using data from nearly17,000 stocks between 2008 and 2009.The findings provide new and compellingevidence that curbs on short-selling failto support stock prices, severely reduceliquidity and restrict the flow of informationto the market.readmore p3Latest research highlights that short selling bans don’t work :: :: :: Canadian court rules on CSA :: :: :: Italy extends short selling ban :: :: :: ING createsglobal equity products unit :: :: :: Overstock.com loses case against Goldman :: :: :: Data analysis :: :: :: Country focus: Brazil :: :: :: Industry events :: :: ::People moves :: :: :: Training and education :: :: ::United States +1.617.204.4500Europe +44 (0) 207.469.6000Asia Pacific +61 (0)2 9220.3610info@eseclending.comwww.eseclending.comDifferentiated Lending Process:Disciplined, Transparent, RepeatableSecurities Finance Trust Company, an eSecLending company, and/or eSecLending (Europe) Ltd., authorised and regulated by the Financial Services Authority, performsin Maryland, U.S.A.), the liability of the members is limited.

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NewsInBriefClearstream and StrateGO liquidContinued from page 1He adds that at this year’s GSF Summit, the CCPcomponent is attracting his attention more in anenvironment where capital efficiency is becomingincreasingly important for Australian financial institutions.“Going to the CCP model is heavily influencedby ongoing regulatory changes…but alsoreflects the capabilities of infrastructure providersto reduce counterparty , operational and settlementrisk. As the take up of CCP services is less aboutgenerating new revenue for a participant and moreabout additional risk reduction, it will take time fornew developments such as a CCP service for securitieslending to take effect in Australia.”For delegates at the Summit, staying ahead ofregulation was not the strongest driver - whenpolled at a panel discussion on the topic, the topreason for interest in a CCP service was to replacemultiple counterparty credit structures witha simplified single CCP structure .European turmoil causes lendersto run for collateral coverContinued from page 1“This has in turn helped fuel an increase in incomegenerated by lending programs despite afall in fees,” writes Data Explorers.European bonds have seen the most in the wayof turmoil over the last three months, with everysovereign bond, except for Finland, seeing a fallin the value of their assets held in lending programs.Amongst the sovereign bonds in lendingprograms to have witnessed the largest declinesin value are Greek (72 per cent), Portuguese(47.5 per cent), Slovenian (39.2 per cent) andItalian (35.4 per cent).The report comes as the eurozone faces a freshwave of downgrades by Standard & Poor’s, whichsaw France lose its AAA long-term rating whileGermany had its long-term outlook affirmed.According to Data Explorers, there was strong demandto borrow French, German and UK bondswhich recorded utilisation levels of 42.1, 47.5 and47.4 per cent respectively. “This demand is nodoubt driven by investors looking to use bonds ascollateral in repo and other finance transactions,”the securities lending analytics firm wrote.Long only investors who lend also increased theirholdings in the relative safety of Finnish, Canadianand Australian economies, it added.Latest research highlights thatshort selling bans don’t workContinued from page 1Professor Beber said: “According to our study, theknee-jerk reaction of most stock exchange regulatorsaround the globe had a severely damagingeffect on market liquidity. This was especiallypronounced for stocks with small market capitalisation,high volatility and no listed options.According to the report, Italy was hardest hit bythe ban, followed by Denmark, Australia andSwitzerland. Professor Beber said: “We foundcountries which already have liquidity problemsbecause of the structure of their capital marketssuffered the most damage from the ban.”Spain, Belgium, Norway, Ireland, USA, UK experiencedthe next largest fall in liquidity whilethe Netherlands, South Korea and Austria wereamong those least affected.3www.securitieslendingtimes.com

BNY Mellon gets Van Eck securitieslending ETF mandateBNY Mellon has been selected to provide securitieslending, exchange-traded fund (ETF)services, custody and fund accounting for thesix new Market Vector Industry ETFs which recentlylaunched.The six new ETFs were offered to existing investorsin the corresponding six Merrill LynchsponsoredHOLDRs through separate exchangeoffers. This transition from HOLDRs is a first forthe ETF industry, noted Joseph Keenan, managingdirector and global head of exchange-tradedfund services at BNY Mellon Asset Servicing,adding that it illustrates the continuing changesin the ETF investment segment.HOLDRs are Holding Company Depository Receipts,securities that represent an investor’sownership in the common stock or American DepositoryReceipts (ADRs) of specified companiesin a particular industry. They are designed to offerinvestors a way to achieve exposure to a basket ofstocks in a cost-efficient manner while preservingownership benefits, such as voting rights, relatedto the underlying stocks, according to ETFdb.“The ETF structure provides a more dynamic, diversifiedinvestment vehicle as it better reflectschanges in the composition of industry sectorsthat inevitably occur over time,” said John Crimmins,VP, portfolio administration at Van Eck.“This was a unique transaction, and we arepleased that BNY Mellon had the expertise anddepth of service required to assist investors whotransitioned from the HOLDRs to the ETFs.”BNY Mellon’s Depositary Receipts group hasacted as the trustee for the HOLDRS basketssince the inception of the product in the late1990s. BNY Mellon Shareowner Services wasthe exchange agent for the six exchange offers.Hedge funds short New Year’sresolutionsShort sellers are staying put in the shareswith high self improvement exposure, despitea New Year’s rally in their share price, writesShort interest on sporting goods retailers andbusinesses focused on weight loss is high: Sectorheavyweight Weight Watchers saw its share priceincrease by a quarter in January alone off the backof a ‘resolution’ rally. Short sellers are not as bullish,increasing their bets 50 per cent to 8 per centof the total shares in the last month, according toData Explorers securities lending flow data.Meanwhile, tobacco producers have low interestbut so do pharmaceuticals producing smokingcessation products.“[Short sellers] have been most active in companiesexposed to weigh loss commitments. This isperhaps owing to the fact that quitting smokingis a much less transient undertaking than losinga few pounds gained over the holiday season,”notes Data Explorers.Canadian court rules on CSAThe Supreme Court of Canada forced the federalgovernment back to the drawing board on the CanadianSecurities Act (CSA) when it unanimouslyfound the legislation to be unconstitutional.However, it did not rule that the concept of a nationalsecurities regulator is necessarily unconstitutional.The Canadian constitution divides certain powers betweenthe provincial and federal governments. Thelegal issue before the courts was whether the CSAfalls under a provincial or federal head of power.Established in all ten provinces and three territories,securities commissions supervise theCanadian securities industry, including stock exchanges,investment dealers, clearing agenciesand investment advisors.In May 2010, the federal government releasedthe CSA, which provides for the harmonizationof the existing provincial and territorial legislationinto a single federal statute and creates anational securities regulator. At the same timeas releasing the CSA, the federal governmentreferred the question of its constitutionality to theSupreme Court.SLT 184x60_quarter strip_Layout 1 04/11/2011 13:00ShortlyPageafter,1both the Alberta and Quebec governmentssubmitted similar reference Data Explorers.questionsNewsInBriefto five-judge panels of their respective appealcourts. Both provincial appeal courts found theCSA to be unconstitutional.Quadriserv posts 2011 securitieslending highlightsQuadriserv has released the rebate rates ofsome of the hottest stocks in 2011. On a dailyvolume weighted average (VWA), Evergreen Solartraded in the tightest range between some 84and 99 bps while AutoChina International saw itsnegative rebate rate range from around 21,000to 930 bps throughout the year, the widest gap ofthe specials reported.However, it should be noted that the massive demandimplied by AutoChina’s rebate rate couldbe influenced by a range of factors, such as howmany shares are in free float, the size of thetrades completed, what kind of collateral mighthave been accepted for the trade and timing.David Lewis, SVP at SunGard Astec Analytics,expects such a trade likely occurred when anSEC investigation into the company’s dealingsheated up over allegations of fraud and overvaluation.His figures show a peak average rebaterate over the last 12 months of 8800 bps, still asubstantial figure. Over the year, the company’sshare price fell some 20 per cent, but in Septemberit had seen a plunge of between 60 and70 per cent, recovering somewhat later inthe year.“It is not unreasonable to see a very expensiverebate going through when things likethat are happening, but it could have been atiny trade...It may well be that a stock peakedat such a rebate, but without contextual datasuch as loan volumes for example, such valuescould be misleading,” Lewis said.He adds that rebates in a tight range oftenpoint to general sentiment about a sector underconsistent downward pressure. The solarindustry for example, faced headwinds whenthe US and European governments started tocut subsidies, bringing into question the viabilityof business models.Real-time Exposure ManagementAccurate collateralisation just became a little clearerwww.pirum.com/exposure4www.securitieslendingtimes.com

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NewsInBriefThe most actively traded ETF by total volumewas SPDR S&P 500, which traded special witha year-long VWA of 10 bps.However, that may be because it’s often tradedfor term and supply tends to be locked up,while a historically low interest rate environmentis also changing the definition of specialswhich would usually only include securities ofat least 20 bps or better.FXI, the China ETF, traded the most special ofthe ETFs at 122 basis points.In GC trade, the 10 most actively traded securitieshad rebates in a tight range from 11 to 23bps with Bank of America seeing both the mostvolume and highest rebate.In other 2011 highlights, Quadriserv announcedsome milestone achievements: the broker-tobrokertrading venue it launched in September,AQS Direct, gained traction, processing about50 per cent of total AQS market activity in thefourth quarter. More than 50 institutional memberfirms, including three of the top five and 10of the top 15 largest prime brokers are eitheractively trading or in the process of connectingto the AQS marketplace.Hedge fund flows go out in JanHedge fund flows declined 0.9 per cent in January,said hedge fund administrator GlobeOp.“In line with year-end portfolio rebalancing, Januarynet capital flows were negative,” said HansHufschmid, CEO at GlobeOp. “The net figureswere therefore not unexpected. Interestingly,January’s inflows were the highest in 12 months;outflows were the second lowest in seven years.”Cumulatively, the GlobeOp Capital MovementIndex for January 2012 stands at 140.18 points,a decrease of 0.88 points over December 2011though it has advanced 12.89 points over thepast 12 months.Nigeria’s market bans nakedshorts for dealing membersAs the Nigerian Stock Exchange (NSE) movescloser to implementing naked short selling,rules are being finalised and dealing membersare out, according to local media reports.According to the NSE’s rule on short selling,made available to Vanguard News, only marketmakers will be allowed to undertake nakedshort selling when the practice becomes fullyoperational in the market.To guide against irregularities associated withshort selling and naked shorting, the NSE declaredthat a listed security will be sold short ata price below the last sale price and includeda rule reminiscent of the RegSHO “locate” rulewith reasonable grounds for dealing members.Italy extends short selling banConsob has confirmed media reports that ashort selling ban on shares of the financialsector has been extended until 24 February.The restrictive measures were initially adoptedon 12 August, 2011 and were extendeduntil 15 January.France, Italy, Greece, Spain and Belgiumhave short selling curbs in place. France hasbanned 10 financial stocks until early February,although the French securities regulatorsaid it would lift the ban earlier if market conditionsimproved.Curbs in Belgium and Spain have no publishedend date, according to the latest update by Europeanfinancial markets watchdog, ESMA.Overstock.com loses caseagainst GoldmanOverstock’s lawsuit against Goldman Sachs andMerrill Lynch was dismissed by a judge becausethe company could not prove the investment firmsviolated naked short sale rules in California.“Obviously, we are disappointed with thecourt’s ruling, which was not on the merits ofthe claims, but on a narrow interpretation ofCalifornia law having to do with whether thisconduct took place in California,” said JonathanJohnson, president of Overstock.com.The clearing operations for the two investmentbanks, which were accused by Overstock of6intentionally failing to locate and deliver borrowedshares for clients, are based in NewYork. Lawyers for Goldman also denied anymarket manipulation, Bloomberg reported.Five years ago Overstock.com filed the caseagainst eleven Wall Street firms alleging manipulationof its stock through illegal naked shortselling schemes and later narrowed the focus ofthe case to the remaining defendants, entities ofGoldman Sachs and Merrill Lynch.In pursuing its case in California, the online retailerpresented cases of manipulative tradeswhich took place in San Francisco, such as thoseeffected by the defendants on the Pacific CoastStock Exchange, among other allegations.Speaking on the ruling, Patrick Byrne, CEO andchairman of Overstock.com, said, “This is a setback,but we have always said we are in this casefor the long haul. Until at least twelve Americanshave had a chance to issue their own ruling onthese facts, we will carry on.”“Broad agreement” on FTT inEuropean ParliamentA “very broad agreement” in favour of an EU financialtransaction tax (FTT) emerged at the startof the Economic and Monetary Affairs Committee’swork on the legislative proposal, accordingto a statement from the European Parliament.Various MEPs said that in recent months, theyhad shifted their position in favour of an FTT.www.securitieslendingtimes.com

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NewsInBriefWolf Klinz, MEP from German party, Alliance ofLiberals and Democrats for Europe (ALDE), saidthat this was “because the financial sector hasnot learned the lessons from the crisis”.Repo and securities lending, as well as collateraltransfers as part of financing transactions andhedging would be caught within the scope of theFTT and, depending on how the tax was structured,may make conducting trades uneconomical,warn market participants. Rejection of such ameasure also formed part of the UK’s recent politicaldecision not to sign on to any far-reachingpact to bind Europe’s economies more closelythus “isolating” the one member of the EU to goagainst the other 26.Meanwhile, President Nicolas Sarkozy insistedthat France must press ahead with a tax on financialtransactions to force the issue in Europe,despite concerns that a unilateral move would isolatethe country and damage the French financialservices industry, reports the Financial Times. Andeven before the statement, French officials hadhinted that the country would go it alone, a movemany MEPs “deplored”, particularly as the proposalseems to be gaining favourable momentum.Only the European Conservatives and Reformists(ECR) political group spokesperson, CzechMEP Ivo Strejcek, stood by his group’s fundamentalopposition to the tax.“Relocation [of financial players] will take placewithin weeks at most,” Strejcek said, adding thatbanks should not be penalised since it was statesmost responsible for the crisis.Marta Andreasan, MEP of the UK IndependenceParty, said that she found it “incredible that weare discussing a financial transaction tax for2014 when the euro is burning”.However, the majority view was voiced by SirpaPietikainen, MEP for Finland, European People’sParty, who noted that the tax would need to beimplemented by, at the very least, the 17 eurozonecountries.The draft report is scheduled to be presentedon 28 February, put to a committee vote in earlyApril and a plenary one in June.Karachi market develops risksystem for short salesThe Karachi Stock Exchange has announced thedevelopment of a Risk Management GatewaySystem (RMGS) for brokerage houses, scheduledfor launch by the end of January.It will give exchange members the ability to identifyshort sales as well as other enforcementfunctions to improve compliance and risk managementfor brokerages. At present, the use ofRMGS is optional.“We believe that the RMGS implementation willbe a mile stone achievement with regards to riskmanagement and trade related regulatory complianceof brokers that will impact positively on investors’confidence on the system and investors’perception of a robust risk management systemat the exchange,” said KSE management.ING creates global equityproducts unitIn a bid to boost sales and cut costs, INGhas merged cash equities, equity derivativesand global securities finance into one unit,reports Bloomberg.The new unit includes part of the equity capitalmarkets business, excluding mergers and acquisitions.The integration will take about two tothree years to be completed and the managementis led by John Wills, who previously coheadedING’s securities finance business, saidCarolien Van der Giessen, spokeswoman for thebank and insurer, speaking to Bloomberg.“As well as revenue-enhancing benefits, significantcost synergies will be created in conjunctionwith enhanced risk management and more efficientcapital utilisation,” ING said. Global EquityProducts will employ about 300 people and willhire product specialists to increase sales and research,Van der Giessen told Bloomberg.Independent Financial Services Consulting8www.securitieslendingtimes.com

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CountryFocusBrazilAs Brazil’s investment community adopts more complex tradingstrategies, securities lending demand is boomingANNA REITMAN REPORTSBrazil’s exchange, BM&FBovespa (BVMF), hasbeen investing heavily in technology in order toattract more volumes and it’s working. Investmentmanagers implementing long/short strategiesand high frequency traders are moving inand consequently, have pushed the demand forsecurities lending services to record highs.Volumes of registered securities lending contractsat BTC, the securities lending programmeof the Brazilian Clearing and Depository Corporation(CBLC), have been increasing exponentially- exceeding 57 per cent in 2011 comparedwith 2010. Meanwhile the quantity of registeredcontracts showed over 46 per cent growth. InDecember, the market reached a new record ofBRL 35.9 billion ($20.1bn) in financial volume ofoutstanding positions.“The ongoing maturity of the market for securitieslending is being pushed by an increase oflong/short investment funds. A lot of investors,if they have their equity deposited and wishto see an increase of income are also gettingused to having a position with BTC,” says DanielGranja, central counterparty risk manager atBVMF. “There is also growth of high frequencytrading and if they want to arbitrage betweenmarkets they tend to seek a securities lendingposition…I expect to see continued growth, thesecurities lending programme is a good tool forhedging equities and for trading as well.”10Acting as the CCP, CBLC is responsible for thesettlement of all securities lending transactionsand collateral remains under the fiduciary ownershipof the clearing house with all trades registered.The country’s securities lending modelis fully integrated into the CCP environment,there is no bilateral trade.In an environment of diminished returns, somemarket participants have noted that the registrationfees are high, borrowers pay to registera transaction at 25 basis points per year (prorataequivalent to the contract maturity) whilelenders pay a 15 per cent tax. However, DanielGranja, is quick to point out how transparent thefee model is.www.securitieslendingtimes.com

“SunGard’s scalabletechnology and decadesof expertise help us growour business withoutsystem or cost constraintsand provide betterservice to our clients”Keith Babbitt,managing director and head ofglobal securities finance at KnightSECURITIES FINANCESunGard – our trusted advisor for securitiesfinance solutionsKnight relies on SunGard’s securities finance solutions to manage its domesticand international securities lending and repo business through Knight Execution& Clearing Services LLC.From trade initiation through to final return, SunGard provides a comprehensivesuite of securities finance and collateral management solutions.More than 150 customers in 150 countries trust SunGard to manage their securitiesfinance operations.Find out more. Visit www.sungard.com/securitiesfinance.©2011 SunGard.Trademark Information: SunGard and the SunGard logo are trademarks or registered trademarks of SunGard Data Systems Inc. or itssubsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.

CountryFocusThough only authorised institutions can accessthe system, all users can see updated dailydata which shows open positions, total lendingvolumes of each asset, compulsory loans registeredover a month and other key statistics - allimportant factors to ensure fair pricing and totrack trends in the market.You need a stockloaning businessand a tradingdesk in orderto provide yourclients liquidityfor short sales.If you don’t havethis liquidity, youmay lose clientsthat want totrade.An important difference in the BTC model thatforeign investors should be aware of, Granjasays, is the lack of cash collateral reinvestment,an activity that is currently being scrutinisedheavily by supranational regulators such as theFinancial Stability Board.At the same time, authorised investment fundsare permitted to act as both lenders and borrowers.Granja explains that this is so that if aspecific stock price drops, the investment fundcan borrow it, sell it to the market and then buyit back. In addition, securities lending positionscan be used as collateral for other transactionssince it is held by the CCP. Another advantageof BTC includes the processing of significantcorporate events in the lifecycle of transactionsfor lenders, such as dividends.Mutual funds by and large dominate the borrowingmarket, representing some 73.9 percent of the market, although foreign investorsalso show significant activity, composing15.6 per cent. Still, this is an incipient marketin many ways. Only last year, J.P. MorganWorldwide Securities Services (WSS) becamethe first non-domestic agent lender tosuccessfully execute and settle a securitieslending transaction.At the time, Ricardo Nascimento, head of WSSbusiness for Brazil, said in a statement that“the ability to offer securities lending servicesin the Brazilian market is part of our strategyto offer our global and Brazilian clients a broadrange of local services to support their investmentstrategies”.Foreign investors now represent some 29.3 percent of the lending market as well though individualswith holdings comprise the largest portionat 43.1 per cent with mutual funds at 18.7per cent. Pension funds are heavily regulatedbut are becoming increasingly important as well.At present, this group represents just under twoper cent of the lending market.Though Granja doesn’t see any regulationspecific to the securities lending market onthe horizon, there may be some risks if thegovernment was to intervene with policies toslow down investment. Last year, the Brazilianeconomy was at most risk of overheating inLatin America and the local currency, the real,was appreciating beyond comfortable levels.To prevent further foreign investment inflows,the government enforced a financial transactiontax, but this has since been repealed.Market observers with knowledge of the matterexpress divergent opinions over how great thisrisk is, yet it remains.“There is still plenty of space for growth, asforeign investors become more familiar withthe way in which BTC is different than foreignmodels, we will likely see an increase for thesemarket players as well,” Granja says.High frequency upgradeAnalysts agree that one of the most importantfactors driving securities lending is the modernisationof the Exchange after its demutualisationand active courting of electronic andhigh frequency trading and thus, investors interestedin shorting.Bernardo Mariano, analyst at Equity ResearchDesk, says that since 2008 investment in technologyis putting Brazil’s capital market closer tobeing on par with more developed exchanges.“Right now the Exchange is implementing atechnology developed together with CME, calledPUMA, which will really put the Exchange, interms of latency, at the level of US or Europeanexchanges, but throughput, which is basicallyhow many orders you can fit per second, willstill be lagging,” he says.Despite the increase in volumes that technologywill bring, for brokers engaged in securitieslending, the fact that CBLC acts as the counterpartyalso has other implications. Since theservices offered by brokers are all the same,competition for business focuses on price andsqueezes margins.“At the beginning, there were a couple of brokerswhich jumped into it because it was profitable,there was very little competition. Then,when the market started to develop, competitionheated up and since the Exchange was demutualised,margins became smaller and smaller,”Mariano says.12It all started in Rio...Alvaro Vidigal’s grandfather loved keeping equitiesin his family-owned insurance company’sportfolio but ran into regulatory compliance issues.Those limitations were the inspiration tocreate a stock loaning business within insurancecompanies all over the country to reconcilethe books.“It all started in Rio as a family business, notfor trading purposes either...but before CBLCit was difficult, with the clearing, for example...then Sao Paulo bought the Exchange and allthe stock lending moved there, even still mytrading desk remains in Rio,” says Vidigal.When securities lending began officially throughCBLC in 1996, Vidigal founded the Socopastock loaning desk, which had some 70 per centmarket share by 2000 and, even since the arrivalof large custodians such as J.P. Morgan,remains one of the top five independent brokersin the securities lending space.He readily admits that the business is not whatit used to be on its own, rather it has become anintegral part of a broker’s service package.“You need a stock loaning business and a tradingdesk in order to provide your clients liquidityfor short sales, if you don’t have this liquidity,you may lose clients that want to trade withyou, stock loaning has become a provider ofother business rather than a business itself,”Vidigal says.He applauds the development of the marketsince CBLC has been involved, noting in particularthe system’s safety but also flexibility.“Many foreign investors are using the CBLC systemto borrow stocks, selling short in Brazil butdepositing collateral in Euroclear. And this hasbeen happening for a while, so, for example,a borrower deposits German sovereign bondsin Euroclear, Socopa provides leverage in Braziland then they can borrow and sell stocks,”he notes. The CCP also has agreements withDTCC for US securities collateral.He adds that there is a misconception that foreigninvestors cannot use the securities lendingmarket, but that has more to do with hedgefunds using swaps as an alternative rather thanany formal barrier to entry - foreign investorshave all the same rights as domestic investors.“I think the securities lending market is very well developednow, Brazil’s system is one of the safest inthe world. Since 1996, there is not one bankruptcyrelated to a short sale...brokers and banks areworking in a safe, secured lending environment.When there is a crisis, many people try to blamesecurities lending but my point of view is that thetail does not chew the dog...stock borrowing andlending provides liquidity to the market. You shouldhave seen the market before 1996.” SLTwww.securitieslendingtimes.com

Securities LendingCustomized solutions to meet each client’s needs.For more than 25 years, J.P. Morgan has provided clients with customized solutionsto fit their unique needs. We believe that clients should have choices with respectto program design, parameters, collateral, loan distribution and oversight. Ourclients benefit from customized and comprehensive lending options and onestopaccess to a range of solutions, supported by the world-class expertise andexecution of our entire firm.jpmorgan.com/securitieslendingThe announcements above appear as a matter of record only. J.P. Morgan is the marketing name for JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide.J.P. Morgan Securities LLC is a member of NYSE and SIPC. ©2012 JPMorgan Chase & Co. All rights reserved.

PanelDebateUS securities lending panel debateThe biggest market in the world has seen its share of trials and tribulations over the past couple ofyears. Our panel examines the issues.Ben Wilkie, editorJames SlaterBNY MellonManaging director and global head ofsecurities lendingBrian LambEquiLendCEOPeter BasslereSecLendingManaging directorRory ZirpoloKellner CapitalPrincipal and director ofsecurities lendingAnne SylvesterJ.P. Morgan Worldwide Securities ServicesManaging director, regional technicalsales and client management, financingand markets productsGeorge TrappNorthern TrustSenior vice president, head of NorthAmerican securities lending client relationsDoug BrownState Street Securities FinanceManaging director, sales manager forthe Americas“Hope to see you at the IMNconference in Arizona”Justin Lawson, PublisherSecurities Lending TimesSLT: How was 2011 for you?Doug Brown: The securities lending marketcontinues to be challenging. However, from arevenue standpoint, 2011 was a better year forour clients as compared to 2010 - given widerintrinsic and reinvestment spreads. We sawmore event-driven activity in the first half of theyear, and in the second half of the year concernsabout the economies globally increaseddemand for many securities. As concerns relatedto both sovereign and bank/broker-dealerbalance sheets continued to rise in the secondhalf of 2011, counterparty exposure (MF Globaldefault) and liquidity management were keyfocuses once again. We have spent a higherpercentage of our time than usual working withregulators to formulate new policy. As fiscal andregulatory reform around the world continue toevolve, we continue to keep our clients abreastof these developments and their correspondingimpact on market volatility, sovereign debt,as well as their impact on financial institutions.Given continued uncertainty around the world,risk management and communication with ourclients have been critical areas of focus. Providingclients with solutions that allow them toparticipate in a low risk securities lending program,providing transparency, and extractingcompetitive returns continues to be key.Anne Sylvester: Overall 2011 was a reasonableyear for our business. We added a goodnumber of clients to the program around theworld, both on a custody and third party basisand saw additional growth in Asia and specificallyin emerging markets, such as Brazil whereJ.P. Morgan was the first and still only agentlender to lend in this market. We saw clients14willing to review their lending parameters andmany willing to add equities as a collateral typeand consider one-off /high revenue opportunitytrades. Generally speaking, client reaction tothe market environment in the second half of theyear was relatively benign compared to 2007and 2008. Overall, supply remained healthy asnoted, but the demand side remained subduedgiven the market environment and the impact ofdeleveraging and impending regulation.George Trapp: 2011 was a good year for clientsin securities lending. Client interest in securitieslending certainly grew during the year with newparticipants joining securities lending programsand current clients increasing their securitiesavailable to lend. Beneficial owners are lookingto extract incremental return from their portfolioso long as they have the ability to managerisk. This is an ideal time for beneficial ownerswww.securitieslendingtimes.com

PanelDebateto review securities lending opportunities andestablish a program that fits their risk and returnobjectives. This will allow them to capitalise ondynamic market opportunities in the future.Trapp: 2011 was agood year for clientsin securities lending.Client interest in securitieslending certainlygrew during the yearPeter Bassler: 2011 was a busy year for eSecLending,particularly in the area of productdevelopment. We launched several initiativesincluding our Treasury and Financing Solutionsproduct which now has over $6 billion in assetsunder administration. It was designed to supportlarge institutional investors in managingthe operations around their treasury managementfunctions by combining the strength ofour securities lending and liquidity managementservices with our ability to capture, synthesiseand provide recordkeeping for multiple sourcesand uses of cash flows. In addition, after extensivedue diligence and the development of riskmitigation solutions, we approved lending in twoemerging markets which we are in the processof discussing roll out to our clients. We also continuedto expand the expertise and depth of ourteam by hiring two new senior staff memberswho have extensive securities lending knowledgeand who broaden the breadth and depthof our executive team. In addition, in light of theincreasing regulatory initiatives underway wehave increased our legal resources to ensurewe have dedicated staff focused on monitoringdevelopments and impact to our clients. Finally,we are in the final phases of our new clientreporting infrastructure which will go live in thefirst quarter of 2012. And we announced toprankings in three significant industry awards, wereached $2.5 trillion in assets auctioned sinceinception and implemented new clients and expandedmandates with several existing clients.Brian Lamb: 2011 was EquiLend’s best year interms of new clients, trading volumes and overallprofitability. We added 17 new clients in 2011and several new key services to the platform.For example, our Trade Optimisation services,Standing Settlement Instructions Repository,Borrower-bid and hundreds of new enhancementsto existing functionality. These havebeen widely embraced by our clients.James Slater: In 2011 client sentiment improvedand our new business pipeline wasstrong. Regulatory change began to drive newtypes of demand and many hedge funds sawincreases in assets under management. Wecontinued to deal with regulatory uncertaintyand market volatility. However, these marketconditions and the impact of the financial crisishave created a business environment that favorsBNY Mellon’s lending franchise where westrive to extract the full intrinsic value for our clientsfrom lending opportunities.Rory Zirpolo: As it was for many, 2011 was achallenging year for KDC in the securities lendingenvironment. Looming issues regardingEurope helped to dampen risk taking in broadmarkets, which was of course felt in the securitieslending community. We saw increasedfocus on names with the highest intrinsic valueand a general shrinking of our book’s breadth.Near-zero interest rates and a lack of intriguingfinancing opportunities meant little-to-no generalcollateral business in 2011, further contributingto the focus on the hardest of hard-to-borrowassets. The ongoing Europe problem combinedwith the unfortunate bankruptcy of MF Globalspurred a greater focus on risk management.In securities lending, that means counterpartydefault risk and operational risk, which we examinedin much greater depth during 2011 thanin the past.SLT: Where can further growthcome from?Brown: Further growth can come from increasedactivity by hedge funds and otherasset managers, regulatory changes, newmarkets, as well as by utilising other collateraltypes than traditional US cash and US governmentsecurities.Sylvester: Our growth strategy is centred onbuilding and diversifying the book, and bringinggood high quality clients and securities tothe lending market, especially in the third partyspace. Focus will continue on emerging marketsand there are a number of new markets onour priority list that we would like to add in thefirst half of the year.Trapp: On the supply side of the market, furthergrowth will most likely come from expansioninto new markets. Northern Trust continuesto research and expand our lending programinto emerging markets such as Poland, Russiaand Malaysia, increasing the supply of securitiesavailable for lending. On the demand side,ongoing uncertainty in global markets is likelyto continue to weigh on investors and affect thelevel of securities borrowed. That being said,15there are some indications that mergers andacquisitions (M&A) activity may be on the risein the coming year, as cash rich corporationslook to deploy capital and expand businesses.Increased M&A activity has historically been adriver of securities lending demand. Additionally,ongoing growth in the use of a broader set ofnon-cash collateral may contribute to increaseddemand. With the expected implementation ofnew regulations requiring the collateralisation ofderivatives contracts, we may see an increasein demand for US treasuries.Lamb: Several key areas. We opened an officein Hong Kong last year and we are adding to ourhead count in the region because we think Asiais an important area for our growth in 2012. Also,our BondLend service offering continues to gainsignificant traction amongst the European andNorth American fixed income markets.Zirpolo: Loomingissues regardingEurope helped todampen risk taking inbroad markets, whichwas of course felt inthe Securities Lendingcommunity. We sawincreased focus onnames with the highestintrinsic valueSlater: Regulatory change is reshaping demandand in the process new lending opportunitiesare being created. Basel III liquidityrequirements and new derivative legislation isdriving increased volumes of collateral trading.Capital and balance sheet management is increasingthe volume of non-cash transactions.In addition, hedge fund assets under managementhave been increasing and that trend isexpected to continue in 2012. As those newinvestments are put to work, we would expect tosee increased demand in the lending market.Zirpolo: Further growth can come from diversificationin credit exposure. While we’ve seen atrend of tightening credit exposure among ourcounterparties, it’s our belief that growth comesfrom diversification. We see that larger lendingagents are sitting on supply of lendable assetswww.securitieslendingtimes.com

PanelDebatewaiting for a narrower range of counterparties toborrow from them.SLT: Will the potential move to securitieslending through CCPs encouragemore beneficial owners tothe market?Brown: Since the crisis of 2008, there havebeen many changes to the securities lendingmarket to reduce risk. Due to these changes,we have seen most clients who exited lendingre-enter, along with some beneficial ownerswho have never participated in lending enteringthe market as well. The majority of clients whodo not participate in securities lending don’t participatebecause of concerns related to the riskof investing cash collateral. Looking at recentcounterparty defaults, Lehman and MF Global,for example, we are not aware of any clients inagency programs who experienced losses relatedto loans to these counterparties. Thus, wedo not believe that a CCP will increase the numberof beneficial owners participating.Sylvester: The CCP discussion has been inthe public domain for some time. Each new iterationof a CCP structure that is launched isan improvement on the previous, however, thefeedback from many of our clients is that a CCPadds another layer of complexity and cost whichcould limit activity over time if returns don’t improvecorrespondingly. From our discussions,most lenders seem fairly comfortable and happywith the risk and parameters of their programsand are not looking for the seismic changes beingdebated.Trapp: We will continue to evaluate the role ofcentral counterparties in the securities lendingmarket. We continually assess market developmentsand ultimately seek ways to best serveour clients’ objectives.Lamb: Thereare some exampleswhere the mechanicsof a CCP’s operationsdon’t work forbeneficialownersBassler: There are clear benefits of CCPs inthe lending market such as price discoveryand greater distribution to a wider universe ofcounterparts. There is also the opportunity forthis model to evolve over time and possibly offerbenefits to the short term cash markets. Itis important to understand the pros and consof any distribution channel, but there does notappear to be any downside to having more options.We expect the debate will continue withmore beneficial owners expressing interest,particularly if regulatory changes force the industryin this direction.Lamb: It doesn’t appear to me that CCPs havedone much to get more beneficial owners into thesecurities lending market to date. CCPs have existedfor many years. On the contrary, there aresome examples where the mechanics of a CCP’soperations don’t work for beneficial owners.Slater: While regulators like CCPs and theyhave a place in our market, significant regulatorychange would have to happen based on the currentclearing models that exist today for agentlenders and their clients to get the full benefitsof a CCP. Current CCP models don’t really dealwith agency lending in a high-volume, low-costmanner. Beneficial owners may benefit from awider distribution via CCPs but without havingthe concept fully developed it is difficult to determineif they would embrace a CCP.16Zirpolo: That is highly doubtful. While counterpartyrisk is of great concern, counterpartyfailure has not caused any real losses in the securitieslending space, meaning a push towardsa CCP model does not add any value from thatstandpoint. The vast majority of losses associatedwith lending during counterparty defaultevents has come in the cash reinvestmentspace, which a CCP model does not address.SLT: Is the US market still focusedon cash collateral, or are alternativesgaining any ground?Brown: Beneficial owners in the US marketcontinue to predominantly lend against cash ascollateral. However, in general, we have seenclients in the US move towards more liquid investmentswith shorter maturities. Furthermore,we have seen more clients accepting equitiesand other liquid collateral in both non-cashtrades and in the form of repurchase agreements,as the collateral has proven to be moreliquid and more accurately priced than manyother forms of collateral during a crisis and arecorrelated when used against other equities.Prime brokers have an increased desire to domore non-cash and non-traditional repo business,as they look to utilise their balance sheetswww.securitieslendingtimes.com

PanelDebatemore efficiently, as well as to meet new regulatoryrequirements.Sylvester: Cash is still the preferred collateraloption for both borrowers and lenders but wehave seen strong growth in non-cash collateralfor fixed income loans and an increaseduse of non-cash collateral including equitiesfor equity loans.Trapp: Although the US market is still predominantlyfocused on cash collateral, some beneficialowners are expressing an interest in thepotential benefits of adding non-cash collateralas an alternative. Diversification of collateral optionsmay enhance revenue while at the sametime potentially mitigating some risk. NorthernTrust consults with clients to help structure theirideal program, which includes acceptable parametersfor investing cash collateral and theacceptance of non-cash collateral. Althoughsome forms of collateral are still not permittedin the US (i.e., equities), borrowers have an increasingappetite to pledge other forms of noncashcollateral, such as convertible bonds andother fixed income instruments.Bassler: Although more beneficial owners areevaluating non-cash collateral, the majority ofthe US market remains focused on cash but theyare opting for more conservative guidelines.Lamb: The US markets are focused on cashcollateral because it’s the superior form of collateralin a bankruptcy. Non-cash collateral willalways be prevalent as well. The percentageof cash and non- cash will continue to ebb andflow over time.Slater: Yes, cash is still the collateral of choicein the US, but collateral flexibility is a topic ofdiscussion with our clients. Regulatory changesand market conditions are significantly changingborrower demand dynamics and opening thedoor to alternative collateral arrangements. Increasedfocus on capital, leverage and liquidityhas increased demand for non-cash collateral.Zirpolo: While not terribly complicated, thereare additional logistical hurdles involved in settlingnon-cash collateral. Because of that, cashremains the collateral of choice in US markets.SLT: 2012 is going to see a lot ofregulatory changes. Are there anyissues that are particularly concerningyou?Brown: As regulatory reform takes shape, ourbiggest concern is that the changes enactedprovide the risk management results intended.17Many of the proposed regulations as writtentoday could negatively impact the breadth andflexibility of structures offered by securities lendingproviders to clients, as well as returns generatedfor clients. As such, we are working withregulators to help devise these new regulationsand hope that more clarity will ensue in 2012.Sylvester: As with all market participants, weare very focused on Dodd Frank and EMIR, andthe potential implications and opportunities theypresent. Both regulations include requirementsaround margin for cleared derivatives which willdramatically increase demand for high qualityassets. This demand will likely translateinto greater appetite to borrow certain securitytypes which we feel could be a driver of positivegrowth in the lending industry over the nextcouple of years.Trapp: The global regulatory environment willremain prominent in 2012 with the roll-out ofnew rules from regulation such as Dodd-Frank,Basel III, and global short selling rules. NorthernTrust’s securities lending experts are active inindustry associations around the globe such asthe Risk Management Association in the UnitedStates, ISLA in Europe, CASLA in Canada andPASLA in Asia. Our involvement with these industrygroups allows us to provide valuableinput to the various agencies responsible fordrafting these new regulations. Our involvementalso puts us at the forefront of regulatoryand market changes, which ultimately benefitsour clients.Bassler: The various industry associations havemade significant progress in educating regulatorsand policy makers around the globe regardingthe impact and unintended consequencesof certain regulatory changes. We are closelymonitoring all proposed changes however thereare several at the top of our radar.Bassler: Thesecurities lendingindustry has takengreat strides inincreasing transparencyover the pastdecadeAs part of our role on The Risk ManagementAssociation’s Committee on Securities Lending(RMA), we are actively working to clarify thescope of the one business day stay imposed onthe ability to close out securities lending andwww.securitieslendingtimes.com

PanelDebaterepo transactions with a borrower that is subjectto Dodd-Frank’s “Orderly Liquidation Authority”(OLA). In addition, in the current environment,transparency is on every regulator’s mind. TheSEC has a mandate to promulgate rules designedto increase transparency of securitieslending information available to brokers, dealersand investors. Additionally, the FinancialStability Board’s securities lending and repoworkstream is reviewing data collection in theindustry, among other issues, as part of its reviewof the shadow banking system. Whilethe securities lending industry has taken greatstrides in increasing transparency over the pastdecade, further transparency and reporting,particularly as it relates to regulators, is likely tobe a future requirement for industry participants,as foreshadowed by the NY Fed staffers’ report.Another key focus is short selling. After monthsof negotiations, the European Parliament adoptedregulations to curtail short selling andcertain credit default swap transactions. Oneof the specific goals of the regulations was to“lay down a regulatory framework with regard tothe requirements and powers relating to shortselling to ensure greater coordination and consistencybetween the Member States wheremeasures have to be taken in exceptional situations.”The effective date for the regulationsis 1 November 2012. While the uncertainty ofthese regulations is currently hindering lendingdemand we believe their overall objectiveof greater transparency is good for the industry.From eSecLending’s perspective, our model isstrongly positioned to address the regulatorsgoals in this regard.Sylvester: On thewhole, lenders havereviewed, amendedand evolved their lendingactivities in thewake of the financialcrisis so they are consistentwith their riskand reward objectivesLamb: We’ve already had too much regulatorychange. More regulation for the sake ofregulation without fully understanding ultimateconsequences is a potentially dangerous thing.Many market participants are still struggling tokeep up with the changes taking place. It wouldbe more helpful if there were less regulatorychanges to come.Slater: One of the biggest challenges we faceright now is regulation. The challenge is thespeed and volume of the regulatory change thatis occurring globally, not just here in the U.S.We have to be aware of what is going on andcomment on as much of it as we can to makesure that there are no unintended consequencesthat could have a negative impact on securitieslending. One of our main concerns is globalregulation with respect to short selling, specifically,the treatment of the sale of a lent security.Any characterisation of the sale of a securityon loan as a short sale would have significantnegative impact on securities lending and overallmarket liquidity.Zirpolo: The speed with which the Volker Ruleis implemented by institutions could have animpact on the overall pool of demand for borrowedsecurities. Additionally, Basel III willraise capital requirements on derivative productsthat can be hedged with borrowed stock.Early implementation of Basel III could seeoverall demand shrink.SLT: Is securities lending in the USnow transparent enough?Brown: Transparency in the securities lendingindustry continues to improve. Third-partyperformance benchmarking tools to compare aprovider’s performance have improved over thelast few years and continue to evolve. Manyaspects of securities lending programs havealso become more transparent including clientreporting, contracts, and Agency Lending Disclosure(ALD). Furthermore, future potentialregulations may help in increasing transparencyas well.Sylvester: We have been very pleased with thetrend for increased transparency for securitieslending programs. On the whole, lenders havereviewed, amended and evolved their lendingactivities in the wake of the financial crisis sothey are consistent with their risk and rewardobjectives. They have become very focused onprogram management, oversight and understandingthe drivers of risk and return. Performancebenchmarking is less prevalent thanseveral years ago. We provide our clients with avast array of reporting, MIS and information includingour securities lending dashboard, daily,weekly, monthly reporting and regular in-depthreview meetings.Trapp: The securities lending market is largelytransparent and has been for several years.Demand remains high for transparency throughreporting and program benchmarking. Clientswant to know what is happening in their lendingprogram such as which borrowers are bor-18rowing their securities, which types of collateralthey hold and how their cash collateral isinvested. Northern Trust provides clients withcomprehensive and timely information on allaspects of their securities lending program. Inaddition, the growth of industry data providersallows lending agents and beneficial owners tobenchmark various aspects of their overall orindividual lending program.Brown: Third-party performancebenchmarkingtools to compare aprovider’s performancehave improved overthe last few years andcontinue to evolve.Many aspects of securitieslending programshave also becomemore transparent includingclient reporting,contracts, and AgencyLending DisclosureBassler: Transparency in securities lending cantake on different meanings. The SEC’s focus ison price transparency which has certainly improvedwith the advent of data providers suchas SunGard Astec and Data Explorers. The remainingchallenge however is that each transactionis unique to each lender’s individual lendingprofile making it challenging to accurately drawbenchmarking comparisons. We also believethat the auction model has helped introduceprice transparency in the market.Lamb: For whom? It certainly seems transparentenough for many participants includingbeneficial owners but there will alwaysbe people who will want greater access tomore information.Slater: The securities lending industry has beenvery transparent for many years vis-a-vis theparticipants in the market. Agent lenders havefor many years provided detailed information tobeneficial owners about their securities loans,collateral and cash reinvestment portfolios. Inwww.securitieslendingtimes.com

PanelDebateaddition, the same information on securitiesloans is provided on a daily basis to the counterpartyor borrower of the securities. Muchof the regulatory focus on transparency dealswith providing more disclosure to investors inentities that engage in securities lending. Inaddition, regulators are also interested in informationso that they can monitor the marketin order to get a sense of the volume and thesize of the industry and the interconnectionsbetween market participants.Zirpolo: Yes. Between the environment of transparencythat has been created industry-wide bythe recent set of new regulation and the bevy ofanalytical tools that are industry standard in securitieslending, there is an appropriate balancebetween transparency and the responsibilitiesfirms have with their customers.SLT: Has the US credit downgradeaffected the market?Brown: There has been little impact on the securitieslending market given similar macroeconomicand fiscal concerns for other global economies.At the onset of the downgrade, manyinvestors were surprised that the US debt wasdowngraded, which created a great deal of volatility.As a result, there was a brief period whenborrowers demanded higher rebates to borrowUS government debt, as concerns in otherglobal economies had not arisen yet. Since thatperiod, US government debt has trended backto normal rebate rates. As concerns about othereconomies continued to grow, the US debt continuedto trade as if it were rated AAA, reflectingthe markets confidence in the economy. Unlesssolutions to reduce the US deficit are enacted,we can expect to see continued volatility in boththe general markets, as well as the securitieslending market.Sylvester: We saw surprisingly little impact tothe market. Clients who accepted US treasuriesas collateral before the downgrade continuedto accept them today.Trapp: In advance of the rating downgrade announcement,the market was clearly braced forpotential disruption; however, the actual eventdid not have a significant impact. More thananything, our focus was on pro-active communicationwith our clients and their consultantsduring this time.Bassler: The US credit downgrade did not havea material effect on the securities lending marketaside from communicating relevant updatesand potential impacts to client regarding anycollateral exposures.Lamb: Yes – it caused the treasury market torally and ultimately called into question the significance,relevance, and viability of the creditrating agencies.Slater: The short answer is no. As part of ourdue diligence leading up to the resolution of theUS Federal debt ceiling increase we preparedfor the prospect of a US credit downgrade. Institutionally,the impact was vetted with seniorshort-end traders and consensus was reachedthat it would be a non-event, some even callingfor a flight to quality to treasuries. At the sametime client contracts and investment guidelineswere reviewed for outliers that might specify acredit rating for U.S. Treasury securities. Thesewere addressed to accommodate the split ratingsor the rating criteria were removed all together.In no instance did clients remove treasurydebt from its approved investments.Zirpolo: It hasn’t. The glut of subsequentdowngrades that followed the US downgraderesulted in a parallel shift in credit ratings anddid not affect the relative credit riskiness of assetsor entities.SLT: What are your predictions for2012?Brown: We expect 2012 to be very similar to2011, given an expected continuation of currentFed policy on interest rates, uncertainty aroundreform to regulations and global macroeconomicpolicy, which will contribute to continuedglobal market volatility. Securities lending providerswill need to be prepared to manoeuveradeptly through the myriad of potential changesimpacting our business, while proactively keepingclients informed.Sylvester: Our expectation is for the market environmentto remain challenging, at least for thefirst half of the year. This is in some ways theopposite of 2011 where the first half of the yearwas quite positive and then became difficultmid-year. Positive progress with the eurozoneresolution and more clarity around the regulatoryagenda will be reason for more optimismbut there are good opportunities out there now,especially in Asia and the emerging marketswhich we hope to capitalise on. We’re hopefulthat through opportunities like these, new entrantsto the market, and demand drivers likecollateral transformation trades, 2012 will be apositive year.Trapp: We anticipate that 2012 will be similarto 2011. Market volatility will likely persist withuncertainty around the European markets remainingin the near term. Interest rates shouldremain at historic lows. Again, there will be a19continued diligence around regulatory developments.Northern Trust will continue to focus oncrafting solutions for our clients and remainingat the forefront of developing market opportunitiesto best extract value for our clients.Slater: We needto set realisticexpectations withour clients aswe will continueto be in a lowyield environmentfor the next18-monthsto 2-yearsBassler: We expect the industry evolution tocontinue, with beneficial owners placing increasedfocus on multiple providers, benchmarkingand performance attribution. In addition,certain sectors of the securities lendingmarket such as Asia are expected to continueexperiencing strong growth. Likewise, emergingmarkets will continue to be a focus for the industryas they have growing economies, a largebase of assets to invest, multiple constituents,good liquidity, and passively held investments.Lamb: Interest rates will remain low for quitesome time. The crisis in Europe will continueto infect markets and EquiLend will have somesignificant developments to announce.Slater: 2012 will be a busy and challenging yearfor the industry. We need to set realistic expectationswith our clients as we will continue to be ina low yield environment for the next 18 months totwo years. We need to continue to monitor ongoingregulatory action and comment when necessarybut also engage with our clients as this regulatorychange creates new opportunities.Zirpolo: It is likely that we will see a furthertightening of the credit landscape. However, itis our hope that we will see a return to the moretraditional banking model, which relies on diversificationof credit exposure as a key means ofmanaging risk. SLTwww.securitieslendingtimes.com

MarketEducationStart RightJ.P. Morgan’s JoshuaLavender explains the bestpractice approach to setting upa securities lending programmeA best practice approach for entering a securitieslending programme requires lenders to beable to clearly define the product, how it works,and the associated risks in order to design acustomised programme that explicitly meetsthe lender’s risk and return objectives. Having athorough understanding of securities lending isthe first step in any programme design.Programme overviewSecurities lending is an investment overlaystrategy that involves the temporary transfer ofa security by its owner (the lender) to anotherinvestor or financial intermediary (the borrower)in a transaction that is collateralised with cashor securities. Securities lending is intended tocomplement investment strategies and allowinvestors the ability to monetise the intrinsiclending value of idle securities. The process oflending out these securities affords an investorthe opportunity to produce alpha by generatingincome, which can be used to increase portfolioreturns or offset portfolio expenses with a manageablelevel of risk. Globally, securities lendingprovides critically needed liquidity in the financialmarkets, supports a variety of trading strategies,facilitates trade settlements and supportsgeneral financing techniques.In a traditional securities lending transaction, securitiesare lent short-term after provisions suchas loan length, collateral type (cash or securities)and rebate rate or fee are agreed upon bythe lender (or their lending agent) and the borrower.When transactions are collateralised withcash, a rebate rate will be negotiated betweenthe lending agent and the borrower. This rebaterate, stated as an interest rate, represents theinterest on the borrower’s cash collateral thatthe lender agrees to pay back at the terminationof the loan. To generate a yield, the lenderwill invest the cash in short-term fixed incomeinstruments via a commingled fund or a separateaccount in order to achieve an interest rateabove the rebate rate. The difference betweenthe interest rate earned on the cash collateraland the rebate rate is the revenue (or spread)that is retained as earnings by the lender. In thecase where the lender employs a lending agent,these earnings will be shared between the lenderand the lending agent. Lenders should beaware of the market risk they assume with theinvestment of the cash collateral.If securities (eg, fixed income or equities) areaccepted as collateral, or there is no cash to invest,a borrowing fee is charged. This fee (quotedas an interest rate) will be applied against themarket value of the securities on-loan. If a lendingagent is used, this fee is shared between thelender and the lending agent.Managing programme risksSecurities lending, like all investment strategies,has a risk/reward trade-off. Historically,four types of risk have been associated withsecurities lending. Typically each of these canbe managed through implementing a varietyof controls with the lending agent’s assistance.Counterparty/ borrower risk can be mitigatedby the lending agent through conducting extensiveand continuous credit reviews, ensuringovercollateralisation with daily mark-to-market,providing lenders with indemnification againstborrower default, and a strong balance sheetto support the indemnification. Operational riskcan be reduced by the lending agent througha robust operating framework, global scale andcomprehensive understanding of transactionalflows. Legal/contractual risk can be mitigatedby using an industry standard securities lendingagreement, compliance reporting and makingcertain the lending agent is utilising a front-endcompliance system. Cash collateral reinvestmentrisk rests solely with lenders and can bemanaged through appropriate programme designand oversight from front-office or investmentprofessionals. The cash collateral shouldbe invested in securities that match a lender’srisk/return profile and be treated like any othershort duration fixed income mandate.Defining your approachTraditionally, the income earned from securitieslending is added to the investment return associatedwith the lending portfolio(s). The lender’sportion of this income is utilised to lower the cost20of various bank services (eg, custody) providedto the lender. There are lenders who choose notto use this type of “bundled” approach and lookfor each bank service to be priced independently(ie, “unbundled”) of the income earned fromsecurities lending. Either approach, bundled orunbundled, should become part of the processfor designing a securities lending programme,requiring a lender to define their goals for participatingin this type of investment strategy. Alender will need to decide if they are lookingonly to earn enough income to fully or partiallyoffset bank-related fees, or if the main focus isto enhance portfolio returns. Each approach orgoal will lead a lender to a different type of lendingstrategy risk profile. For example, if a lenderis simply looking to offset some of their bankrelatedexpenses, they might consider havingstrict lending and cash collateral reinvestmentparameters, such as using only overnight governmentrepo or accepting just securities collateral,thus limiting their lending opportunities.On the other hand, a lender seeking to produceadditional alpha or income to reduce significantunfunded liabilities, considerably lower portfolioexpenses and/or outperform competitors’ funds(eg, index funds) may be willing to invest thecash collateral in a 2a-7 or money market typestructure and take advantage of additional lendingopportunities.Selecting a programme structureWorking in tandem with the lending agent, lendersshould design a programme that achievestheir goal and meets their risk/return objectives.A lender will need to consider four areas: programmestructure, loan type, parameters andcollateral. Programme structure refers to fivetypes of lending distribution methods: agent discretionary,client-directed, auctions, exclusivesand principal. In an agent discretionary programme,a lender will utilise the lending agent tofacilitate and negotiate loan transactions, evaluateborrower credit risk, provide collateral monitoringand/or cash collateral reinvestment andongoing loan maintenance, and recordkeeping.A client-directed programme allows lenders tooperate their own lending platform using theirwww.securitieslendingtimes.com

MarketEducationcustodian to facilitate loans and/or cash collateralreinvestment transactions. Generallyspeaking, auctions, exclusives or principal, arearrangements whereby a lender agrees to maketheir portfolio(s) or a portion thereof available forborrowing on an exclusive basis to a particularborrower for a pre-determined fee or price andperiod of time. Each programme structure maybe appropriate depending on a lender’s goals,portfolio composition and market conditions.Loan typesThe second programme design considerationis the types of loans (eg, open, term, generalcollateral and specials) a lender is willing to engagein and the lending philosophy (eg, value orvolume) utilised. Most loans are specified for anopen period, which implies that the loan can beterminated at any time and the rebate rate or feecan be renegotiated. A term loan is for a specificperiod of time, generally at a fixed rebate rateor fee. General collateral loans are for securitiesthat are not experiencing high borrowingdemand and therefore produce lower earningsper loan due to higher rebate rates or lower borrowingfees. This approach, often described asvolume lending, could necessitate a more aggressivecash collateral reinvestment strategy(eg, money market) to allow for a greater levelof reinvestment spread (ie, yield earned abovethe federal funds rate) through the investmentof cash collateral in higher yielding and longerduration securities. Volume lending will typicallyproduce larger cash collateral balances,which may lead to higher programme earnings.A value approach would involve lending mostly“specials,” which are defined as securities withhigh borrowing demand as noted by very lowand sometimes negative rebate rates or highfees paid by the borrower(s). This type of strategyproduces a higher return per loan and wouldallow for more conservative cash collateral reinvestmentguidelines (eg, overnight repo).Parameter specificationsDuring the design and implementation phase, alender will need to determine if any specific parametersshould be enacted. One parameter,minimum spread, is defined as a specific levelthat sets a spread between the collateral investmentrate and rebate, which needs to be achievedbefore a loan can take place. Another parameter,maximum on-loan, is used to specify the highestamount of a portfolio and/or a security that can beon-loan at any point in time. This parameter canbe noted as an outright percentage of a portfolio orspecific market value. The borrower limits parameterdenotes the maximum amount (eg, by marketvalue or percentage) that a lender’s programmecan be on-loan to a particular borrower. Finally,a lender can establish specific account and securitylevel restrictions. For example, a lendermay choose to make a certain CUSIP ineligiblefor lending. Each of these parameters allows alender flexibility to design and implement a securitieslending programme that explicitly meets theirobjectives.Options for collateralThe final step a lender takes in designing theirsecurities lending programme deals with collateraloptions (eg, cash and/or securities). Lenderswho choose to accept only securities as collateralshould be aware that lending opportunities maybe reduced, and they will need to decide whichtypes of securities are acceptable from a riskstandpoint. When cash collateral is accepted bythe lender, they may have the option of selectingfrom a variety of cash investment vehicles. Suchoptions include a dedicated separate account,a commingled fund, an external (ie, to the lendingagent) investment vehicle and a “self-invest”model, whereby the lender invests the cash. Aseparately managed account allows a lender tocustomise their cash collateral reinvestment programmeto meet their unique risk and return requirements,allowing for increased transparencyand control. A commingled fund pools lenders togetheraccording to a common investment strategy.With an external investment vehicle, a lendermay already have positive experience with a specificfund or investment manager and thereforeselect this option. A lender who feels that managingshort-term cash is a core competency of theirfirm may choose to utilise the self-invest model.This part of the securities lending design processrequires that the lender fully understands and iscomfortable with the cash collateral reinvestmentvehicle’s investment philosophy (eg, capital preservation,income) and guidelines (eg, liquiditylevel, duration, credit quality, security types andsector). Choosing the appropriate cash collateralreinvestment vehicle can depend on a variety offactors such as lending programme size, liquidityrequirements, control/ownership level, desireto influence investment decisions, transparencylevel and ability to match risk/return tolerance.SummarySecurities lending has been an integral partof the financial markets for over 75 years andcontinues to provide valuable opportunities forinvestors to earn additional income or alphawithin a risk-controlled environment. This investmentstrategy enables lenders to enhanceportfolio returns and offset portfolio expenses.The best practice approach to designing a securitieslending programme should encompass athorough understanding of the product, lendingand collateral options and the lender’s individualgoals and risk/return objectives. SLT21Joshua LavenderExecutive director, securities lendingJ.P. MorganKey designWorking in tandem with the lending agent, lendersshould design a programme that achievestheir goal and meets their risk/return objectives.Securities lending benefits the global economy by:• Providing liquidity in the financial markets• Supporting a variety of trading strategies• Facilitating trade settlements• Supporting general financing techniquesThere are four types of risks associated withsecurities lending:• Counterparty/borrower risk• Operational risk• Legal/contractual risk• Cash collateral reinvestment riskMain goals for participating in a securitieslending programme:• Higher portfolio returns• Offset bank-related feesLenders need to consider four areas in designinga customised securities lending programme:• Programme structure• Loan type• Parameters• CollateralThere are several types of loans that canbe considered when designing a securitieslending programme. They include:• Open period loan• Term loan• General collateral loan• SpecialsThere are several types of parameters thatlenders can enact in implementing their securitieslending programme. They include:• Minimum spread• Maximum on-loan• Specific account and security level restrictionsOptions for investing cash collateral include:• Dedicated separate account• Commingled fund• External investment vehicle• Self-invested accountChoosing the appropriate cash collateral reinvestmentvehicle depends on:• Lending programme size• Liquidity requirements• Control/ownership level• Desire to influence investment decisions• Transparency level• Ability to match risk/return tolerancewww.securitieslendingtimes.com

DataProvisionClear as daySLT speaks to Quadriserv about the data elements helping increasedtransparency in the securities lending market.BEN WILKIE REPORTSMarket transparency has become a buzzword ofchoice. In proposed legislation and regulationsit’s been characterised as an important tool tomonitor and more completely understand transactionprices in order to measure the size andrisk of financial markets. Lost in many of theseplans is a universally agreed upon definition oftransparency and how and where it should beapplied. But the topic did get SLT thinking aboutmarket data, which is how price transparency ismost easily conveyed. We spoke to Will Hench,head of ASQ market data sales at Quadriservabout AQS Market Data and asked what impacttransparent market data is having on the securitieslending industry.SLT: When you talk about market data,to what exactly are you referring?AQS: In the case of AQS Market Data, we arereferring to a wide set of securities lending datathat includes anonymous real-time live bid/offerquotes. Because AQS members all have equalaccess to the market in which they are trading,the market provides a purely economically derivedprice for each borrow or loan. In addition,the data is “unscrubbed,” meaning all of the executedand unfilled orders are included so youcan get the fullest picture possible. Becauseyou can view the rate, quantity and time of themarket activity it adds yet another referencepoint for the demand and supply in the securitieslending market. The data also provides asense of real-time market size as measured bynotional balances and duration of the positionson the platform.SLT: So where does the difference inopinion about market data come from?AQS: To be clear, we are sympathetic to the industry’ssituation in which they are forced to dealwith a wide variety of opinions about transparencyand what role market data is expected to fill. Wethink the confusion is warranted. Securities lendinggenerates very different information than mostother financial markets; given the lack of mandatoryreporting and the wide variety in voluntaryreporting standards, it’s very difficult to know howone data source compares to another.our case, OCC (known as the Options ClearingCorp) stands between every executed transactionas the central counterparty to each trade.The result is that the rates are driven by the fundamentalsof supply and demand. The rates arenot influenced by credit-worthiness concerns ofthe counterparty, rates bundled as a part of alarger business transaction and other variablesthat influence lending and borrowing rates in theover-the-counter securities lending markets.SLT: So what are you saying aboutOTC and AQS Market Data?AQS: They are complementary. As in most othermarket sectors, the listed and unlisted securitieslending products not only coexist, they have becomemutually beneficial. Data from a standardizedmarket like AQS can be compared to theOTC market data and provide a compelling explanationof what is underneath the market. Becauseof the varying loan rates due to dividends,terms, block trades and so on, the rates can beleft open for interpretation. Comparing that informationto the AQS transactions, traders canlook at those rates as a AA+ lending benchmarkfrom a credit standpoint and then draw conclusionsabout the market from that. An open loanis complex and evolving each day and real-timeinformation can help inform people about what’shappening under the simple rate layer.SLT: What has been the reaction sofar from customers?AQS: We have received a very positive response.The feedback has essentially been thatthe data is useful because they get a better viewand more insights into the market. As a result,AQS data can help firms to price specific securitiesin which they might not currently have amarket or securities that are thinly traded.SLT: What are subscribers actuallydoing with the data?AQS: I think we can break users down into twocategories. The first are traders who actually participatein the AQS and OTC markets, so theyutilize the data to monitor the positions in theirportfolio. The other group to which we sell subscriptionsincludes various firms that do research.They analyze the data for patterns and opportunitiesbecause they have determined that AQSMarket Data represents a new and unique dataset that is ideal for testing trading strategies.SLT: What does the AQS MarketData look like?AQS: AQS Market Data, which is available inthree levels, provides a look into current positionsopen on AQS as well as real-time bid/offerspreads and new contracts. We can provide historicaldata with each activity time stamped. Additionally,we offer return, recall and rerate metricsfor securities’ stability and duration trendsin AQS. And the data is available via Excel orthrough our API.SLT: Okay. And finally, any guessesas to when the term transparencywill have a definitive meeting?AQS: No, but we know many folks in the businesswho will thank you for asking. SLTAQS is a source of real-time information that notonly includes new borrow/loan contract information,but also bids/offers, recalls, rerates, returnsand average duration in each symbol. This informationset can tell you exactly how long contractsstay open before one side decides to closeit out in the AQS Market, which is anonymousand standardized. The borrowing and lending isall transacted through a known counterparty. In22www.securitieslendingtimes.com

Seize new opportunities with ourSecurities Lending Program.Who’s helping you?With increased pressure on margins, institutional investors must seize every opportunity to enhance portfolio returns.At BNY Mellon, our experts will work with you to mobilize your idle assets through our suite of securities lending services.Working together, we’ll do the small and large things that help you find the path to success.bnymellon.com/assetservicingBNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Products and services are provided in various countries by subsidiaries, affiliates, and joint ventures ofThe Bank of New York Mellon Corporation, including The Bank of New York Mellon, and in some instances by third party providers. Each is authorized and regulated as required withineach jurisdiction. Products and services may be provided under various brand names, including BNY Mellon. This document and information contained herein is for general informationand reference purposes only and does not constitute legal, tax, accounting or other professional advice nor is it an offer or solicitation of securities or services or an endorsement thereofin any jurisdiction or in any circumstance that is otherwise unlawful or not authorized. ©2012 The Bank of New York Mellon Corporation. All rights reserved.

DataAnalysisThe rubber meets the roadCompetition gains traction in the Chinese tire market while Goodyearregroups. SunGard’s Andrew Shinn weighs in.MARKET PERSPECTIVEWith the increase in correlation among stocks in2011, it has been harder for investors to generatemarket-beating returns by taking advantageof fundamental differences between companies.Nevertheless, investors continue to make fundamentals-basedbets. For instance, accordingto SunGard’s Lending Pit, investors have borrowedmillions of shares of tire maker ChengShin Rubber, while securities lending activityin its closest competitor, Hankook Tire, has remainedlow.In 2012, the most successful tire makers will bethose that can capitalise on the growth of theChinese auto market, manage their raw materialexpenditures and continue to innovate onthe product side. While Cheng Shin Rubber’snatural strength has been in China, competitionin the region is building among the global “bigthree” (Bridgestone, Michelin and Goodyear)and Cheng Shin has been squeezed by rawmaterial prices. Moreover, sell-side analystsmay be too optimistic about Cheng Shin’s prospectsin the Chinese tire market; if Cheng Shindoesn’t live up to analysts’ lofty expectations, itsshare price will fall.Data from SunGard’s Lending Pit shows thatshorting activity in Cheng Shin has increased430 per cent from 3.2 million shares borrowed inmid-August 2011 to 17 million shares currently.Borrow costs have tripled to 480 basis pointsover the same time period. In order to hedgesome of the market risk of a short position inCheng Shin, investors may want to combine ashort position in Cheng Shin with a long positionin Goodyear Tire and Rubber.China has been driving the growth of the overalltire market. Worldwide, tire makers generated revenuesof $125 billion in 2010. And while the marketonly grew at a 1 per cent compound annual growthrate over the past five years because of the globalrecession, forecasts predict that growth will zoomup to an annualised rate of 7 per cent over the nextfive years, ultimately reaching $172 billion.Three manufacturers, Michelin, Bridgestone,and Goodyear, currently share 46 per cent ofthe market, but new market entrants, such asCheng Shin and Korea’s Hankook, have beensteadily gaining market share at their expense.In fact, Cheng Shin has captured a third-placeposition in China at a time when Goodyear hasbeen forced to deal with legacy problems.The level of competition in the Chinese domesticmarket has intensified, however, and the largesttire manufacturers are launching billion dollarcapital expenditure programs. Collectively, manufacturersare planning to spend $9.7 billion incapacity expansion in 2012 – much of it in China– which is larger than the capacity expansion thatthe industry spent in 2007, the previous peak.While the Chinese market has become morecrowded, which bodes ill for Cheng Shin, Goodyearhas successfully cut costs and transitionedto higher-end, higher profit-margin tires. In 2009,Goodyear met a four-year goal of $2.5 billion incost savings by shutting down 13 plants, sellingits farm tire segment to Titan and its engineeredproducts segment to Carlyle, and re-negotiatinglabour agreements. It set a goal of cutting an-24www.securitieslendingtimes.com

DataAnalysisChina – and the market leader Hankook. Evenas Goodyear has successfully focused on highendtires, the big three know that they cannotconcede uncontested lower-end market space toCheng Shin and Hankook. Michelin announcedthat it will enter the third-tier market and competehead-to-head with Cheng Shin in China, andGoodyear just opened a new production facility inChina last year. Both Hankook and Cheng Shinare relatively overvalued with EV/EBITDA ratiosof 8.6 and 12.4, respectively. And even Hankookis currently suffering, posting a net loss inthe third quarter of 2011 and a drop in operatingprofit margin from 2.5 per cent to 0.6 per cent.Investors have begun to sell short Cheng Shinover the last several months, mainly due to loftyexpectations and increased competition in China.Cheng Shin, which started as a bicycle tiremanufacturer in Taiwan in 1967, is now the 10thlargest tire maker in the world. It generated $3.7billion in revenue over the last twelve months,56 per cent of which came from China. That is asignificant increase from 30 per cent in 2003.other $1 billion by the close of 2013, and thecompany is on track to reach that goal througha number of measures, including the closure offacilities in Tennessee and France and furthernegotiations with union employees. Goodyearalso increased its percent of revenue from highendtires from 60 per cent to 75 per cent. Highendtires, designed for sport utility and luxurycars, are priced at $130 per tire, whereas lowerendtires sell for $60 per tire.Goodyear has also been able to pass on increasedraw material costs to consumers, due inpart to the successful introduction of new productdesigns, such as run-on-flat extended mobilitytires. Technology is an important differentiatorin tires: higher-quality tires improve a vehicle’sfuel efficiency as well as safety and performancehandling. For instance, Goodyear is currently developinga tire with a miniature internal pump thatwill automatically keep the tire inflated at the optimalpressure, which improves fuel efficiency.Goodyear should also benefit from the continuedreduction in commodity prices over the nextfew years. Too much unsupportable debt in theglobal economy will lead to deleveraging, andin turn, slower global growth will lead to fallingcommodity prices. In the short-term, the swingfrom an 87,000 ton rubber shortage last year toa projected 400,000 ton surplus in 2012 is puttingdownward pressure on rubber prices. Theprice of rubber traded on the Tokyo CommodityExchange has fallen by half since reaching anall-time peak in February last year.Going forward, Goodyear’s mix of higher-endtires and strong brand should allow it to continueto charge a premium price and pass on costincreases to consumers. If rubber costs remainlow, Goodyear’s cost cutting will help improvemargins even more and ultimately lead to multipleexpansion on a higher earnings base.While China remains the largest new car marketin the world, and 20 million new cars are expectedto be sold in 2012 (up 11 per cent from2011), competition is intensifying across all marketsegments in China, impacting both ChengShin – now the third-largest seller of tires inCheng Shin’s problems are demonstrated byan uptick in accounts receivable and inventoryand a decline in accounts payable in the thirdquarter of 2011. EPS in the third quarter wasoff 30 per cent year-over-year, and gross marginsdropped from 17 per cent to 13 per cent.In November 2011, analysts were predicting a25 per cent increase in Cheng Shin’s earningsper-sharein 2012, based in part on three newplants coming online in China and one in Taiwan.This estimate has been revised down to20 per cent as of 18 January 2012, but nevertheless,it may still be too high. It can take up totwo years for a plant to become productive, sothe four new plants may not impact revenue andearnings until 2013. Regarding sales estimates,with the Chinese domestic tire market expectedto grow only 9 per cent next year, combined withincreased competition, Cheng Shin may not beable to meet current estimates of 15 per centsales growth.Despite the earnings miss in the third quarterof 2011, Cheng Shin’s share price has only declined8 per cent since then. It seems that shortsellers are waiting for an even bigger miss in thefourth quarter. SLTAndrew ShinnVice president, sales and developmentSunGard Astec Analytics25 www.securitieslendingtimes.com

IndustryEvents201 201 January 02 Febuary 03 March 04 AprilM T W T F S S M T W T F S S M T W T F S S M T W T F S S1 1 2 3 4 51 2 3 42 3 4 5 6 7 8 6 7 8 9 10 11 12 5 6 7 8 9 10 11 2 3 4 5 6 79 10 11 12 13 14 15 13 14 15 16 17 18 19 12 13 14 15 16 17 18 9 10 11 12 13 1416 17 18 19 20 21 2223 24 25 26 27 28 2930 3120 21 22 23 24 25 2627 28 2919 20 21 22 23 24 2526 27 28 29 30 3116 17 18 19 20 2123 24 25 26 27 283018152229The 18th AnnualInternationalBeneficial Owners’Securities LendingSummitITAS 2012International TransferAgency Summit9th Annual PASLARMA Conferenceon Asian SecuritiesLendingSecurities FinancingForum LondonLocation: Phoenix, AZDate: 29-31 January 2012www.imn.orgLocation: LuxembourgDate:29 February - 1 March 2012www.informaglobalevents.comLocation: TaiwanDate: 6-8 March 2012http://www.rmahq.org/securities-lendingLocation: LondonDate: 20 March 2012www.dataexplorers.comThe 18th Annual International BeneficialOwners’ Securities Lending Summitdetails to followLast year, the 10th Anniversary of ITASsaw 250+ attendees at the event. Thepositive feedback led all involved to declareit a resounding success in termsof catching up with business partners,listening to and debating with some ofthe leading figures in this industry, andhaving great fun at the evening functions.Already there is great anticipationin the market for coming along toITAS 2012.Keynote Speaker - Robert A.Jaeger, senior investment strategist,BNY Mellon Asset Management,Author of “All About HedgeFunds: The Easy Way to GetStarted”Join the leading practitioners in the SecuritiesFinancing industry for a day ofdebate and insight into this market. Lastyear the London forum sold out quicklyand was attended by close to 300 delegates.This is a date not to be missed.SLTSECURITIESLENDINGTIMESWWW.SECURITIESLENDINGTIMES.COMCovering all areas of securitiesfinance, repo and collateralmanagementDon’t miss out, subscribe now26 www.securitieslendingtimes.comeveyone got their copy strip.indd 1 20/6/11 23:04:34

Hittingour strideWith our expertise in most active markets and access to both boutique andcustody supply pools, our global equity finance team is turning heads.

IndustryTrainingTraining and Education28-29 Feb2012LondonBasel IIIThis 2 day course examines the latest tools, techniques and best practices surroundingeconomic capital calculation and management and how to structure an Internal CapitalAdequacy Assessment Process (ICAAP) that maximizes its inherent motivational incentives.It considers the Basel accords, with particular focus on Basel 3, and examines thecomposition and interrelationship between the various types of capital - available (book),regulatory and economic - and explores frameworks for their effective management.EurekaFinancial27-28 Feb2012ParisRepo & Securities LendingThe growing importance of repo and securities lending transactions has made them impossibleto ignore for anyone involved in the financial markets. Both of these markets aremeasured in the trillions of dollars. Indeed, despite difficult market conditions the internationalrepo and securities lending markets continue to develop rapidly in variety andcomplexity. Repo continues to offer an inexpensive and efficient way to improve liquidityin the secondary markets and provide investors with better returns on their underlying collateral.The securities lending market provides borrowers with ready access to key equityand debt securities and provides lenders with a ready source of fee income.EuromoneyTraining1-2 Mar2012Hong Kong Foreign Account Tax Compliance Act (FATCA)No piece of legislation has ever sparked more controversy for financial institutions aroundthe globe than FATCA – The United States Foreign Account Tax Compliance Act, passedin 2010 as part of the HIRE Act. Every financial institution located outside the UnitedStates needs to be aware of the implications of FATCA and what they are required to doto comply with this legislation.Marcus Evans11-13 Apr2012SingaporeDodd-Frank Act for Non-US BanksThe training course is aimed at helping banking, foreign corporations and professionalpractices understand the stakes involved and in this sense, offers an extremely valuableand unique perspective on how the Dodd-Frank may be interpreted for business, financeand the law.EuromoneyTraining28-29 Jun2012Hong Kong Repos and Securities LendingRepos and Securities Lending provides a comprehensive and practical programme explainingthe legal, regulatory and documentary issues involved in repo and securitieslending transactions.EuromoneyTrainingMXConsultingDelivering regulatory solutions to clients within Agent Lending,Custodial and Principal Securities Financing programmes.A business & IT consultancydedicated to the SecuritiesFinancing IndustryPositive Change,Efficiently Deliveredwww.mxcs.co.uk28 www.securitieslendingtimes.com

dealReporter delivers real time proprietary intelligenceand analysis on a wide range of liquidity events forparticipants in the equity and fixed income markets.Mergers and AcquisitionsSpecial SituationsCapital Structure EventsConvertible ArbitrageClient access to a dedicated team of analysts and journalists.www.dealreporter.comAsia Pacific: +852 2158 9731Europe and EEMEA: +44 (0)20 7059 6122Americas: +1 212 686 3076

PeopleMovesIndustry appointmentsHazelTree has appointed Paul Calderone asmanaging director of operations. In his new position,he will manage all aspects of HazelTree’srapidly expanding operations, which are focusedon delivering high-performance Treasury functionalityto multi-primed hedge funds.Calderone was previously director of Equitiesand Prime Services at Credit Suisse in institutionalsales and development, covering traditionalasset managers, investors and hedge funds.“HazelTree’s client base has tripled over thepast six months, so Paul is joining us at aparticularly exciting and opportune time,” saidcompany CEO Stephen Casner.In addition, Calderon was product manager forbalanced alpha services and was responsiblefor increasing the market share for short extensionbusiness to top position within the primeservices industry. Previously, at Morgan Stanley,Mr. Calderone was VP in Equity FinancingServices and led product development andproduct management efforts across the securitiesdivisions among other roles.“Asset managers face increasing complexityas they deal with multiple counterparties, operationalsystems and regulations. The costof managing that complexity can be high andHazelTree will be at the forefront in deliveringcost effective, next generation solutions to theindustry,” said Calderone.Pirum Systems have strengthened their Londonteam with the appointment of JonathanLombardo as head of sales.Lombardo joins Pirum and continues a 20-yearcareer in securities lending which spans variousroles in New York and London. His industryinvolvement involves the broker dealer, agentlender and vendor side of the business wherehe had experience running trading desks andmanaging client relationships. Lombardo willbe responsible for building relationships withsenior managers in the securities finance community,ensuring they are aware of the extensivesuite of offerings from Pirum. He is also aformer board member of the International SecuritiesLending Association (ISLA).Lombardo was previously working at the securitieslending MTF, SecFinex, which SLT reportedon 29th November was closing down.Rupert Perry, CEO of Pirum, said, “JonathanLombardo’s experience and involvement inthe securities lending business, both as a marketpractitioner and a former board member ofISLA, is impressive and Pirum will benefit fromhis energy and business perspective. We lookto Jonathan to provide additional market reachand expertise as Pirum seeks to broaden its participationbase and promote central counterpartyand real time services for securities finance”.The announcement comes as another Pirummember leaves. Andy Davies, business developmentmanager, will be pursuing other opportunitiesfocused on the buy side. He was withPirum for over four years.The Financial Industry Regulatory Authority (FIN-RA) has announced that Gregory Fleming waselected as large firm governor on its board. He ispresident of Morgan Stanley Smith Barney and ofMorgan Stanley Investment Management.Richard Ketchum, FINRA chairman and CEO,said, “The Board is pleased to welcome Greg andI look forward to working with him on the manyimportant issues that face investors. He bringsextensive knowledge and experience to these issuesand will be a great asset to our Board.”Fleming fills the seat vacated by Sallie Krawcheck,former president of Global Wealth & InvestmentManagement, Bank of America.The Financial Stability Board has announcedPhilipp Hildebrand’s resignation as vice chairman.The announcement came as Hildebrandstepped down as chairman of the board of theSwiss National Bank after a successful campaignto unseat him. At issue was a controversialcurrency transaction made by his wife mereweeks before the Swiss central bank moved topeg the franc to the euro in September.Mark Carney, chairman of the FSB, said, “Philipphas been instrumental in helping to manage theresponse to the global financial crisis and in developingmajor reforms to strengthen the resiliencyand stability of the international financial system.I very much regret the circumstances of hisdeparture and the loss of his future contributionsto the work of the Financial Stability Board.”The Conifer Group has announced the appointmentof Howard Eisen to join its Securitiessales team as it expands its client base to includealternative asset managers of all stripes.Eisen will be based in New York and comes tothe role with more than 15 years of experiencein prime brokerage and capital introduction atinvestment banks such as Goldman Sachs andUBS. Prior to joining Conifer, Eisen was the co-founder and managing director of FletcherBennettGroup, a capital raising and consulting firm thatworks closely with the hedge fund community.His appointment comes as the fund administratoris experiencing increasing demand, particularlyfrom large hedge fund managers, for itsgrowing suite of services, namely its new cloudbasedasset servicing solution, Conifer iCon.“Alternative investment firms of nearly everysize have to consider innovative solutions thatenhance their risk and attribution reporting at alower cost. Conifer’s cloud-based and middle-officeservices help funds navigate the challengesof ongoing change in reporting requirementsand operational models,” he said.Jack McDonald, CEO at Conifer and to whomEisen will report, said, “Howard has a proventrack record of supporting hedge funds and helpingthem achieve investment success. His experienceand breadth of industry relationships willbe an important part of our continued successas we expand to other segments of the hedgefund market.” SLTSLTSECURITIESLENDINGTIMESEditor: Ben Wilkieeditor@securitieslendingtimes.comTel: +44 (0)20 3006 2710Journalist: Anna Reitmanannareitman@securitieslendingtimes.comTel: +44 (0) 20 3006 2888Marketing director: Steven Laffertydesign@securitieslendingtimes.comTel: +44 (0)784 3811240Publisher: Justin Lawsonjustinlawson@securitieslendingtimes.comTel: +44 (0)20 8249 2615Office fax: +44 (0)20 8711 5985Published by Black Knight Media Ltd16 Bromley RoadBeckenhamKent, BR3 5JEUKCompany reg: 0719464Copyright C 2011 Black Knight Media Ltd.All rights reserved.30www.securitieslendingtimes.com

If you think Treasury isn’t sexy,look at these numbers.HazelTree Treasury Suite: Selected Hedge Fund ProfilesFund Size $500m $1b $1.5b $3b $6bLong Exposure 90% 100% 100% 95% 110%Short Exposure 80% 75% 110% 100% 85%Avg. Credit Cash Balance 15% 10% 10% 10% 5%Avg. Debit Cash Balance 10% 5% 15% 15% 12%% Longs Hard to Borrow 10% 5% 7% 7% 5%% Shorts Hard to Borrow 30% 30% 25% 20% 15%Typical Treasury Impact on a FundCash Management $125,000 $125,000 $375,000 $750,000 $750,000Stock Loan Management $900,000 $1,000,000 $2,100,000 $3,990,000 $19,800,000Stock Borrow Management $1,180,000 $2,212,500 $4,331,250 $6,900,000 $8,415,000Total Performance Increase $2,205,000 $3,337,500 $6,806,250 $11,640,000 $28,965,000Impact in Basis Points 44.10 33.38 45.38 38.80 48.28Copyright © 2011 HazelTree Fund Services, LLC. All Rights Reserved.If you’re a hedge fund manager, chances are youhaven’t spent much time staring with admiringglances at the treasury function. We’re about tochange that. Treasury Suite is our unique platformthat coalesces data across all of your fund’scounterparties so as to minimizerisk, ease compliance, and maximizeoperational alpha. For our latest generation, we’veadded an integrated Form PF that allows directelectronic filing with the SEC, along with newmargin functions and a host of other tools to helpsqueeze every fraction of a cent out of your fund. Asyou can see from the figures above,the results can be pretty stunning.Call 1.212.727.0883www.hazeltree.com