Expected regulatory changes could open the door to new strategies in securities lending, particularly involving ETFs, panelists said Tuesday at the Information Management Network Beneficial Owners' International Securities Lending Conference in Austin, Texas.
“Regulations will change the traditional model of securities lending, but they also will open our minds to try new things that are different,” said William Smith, managing director, securities lending, at J.P. Morgan Worldwide Securities Services. “And there'll be more agent responsibility to bring new strategies to clients.”
Securities lending with exchange-traded funds is gaining institutional client interest, said Jason Peter Strofs, managing director at BlackRock. “The nice thing is the ETF wrapper,” Mr. Strofs said. “The ETF itself can be lent. It lets clients go short easier. It provides beta and alpha; the securities lending itself generates the alpha.”
Added Paul Lynch, chief operating officer of eSecLending, “From the demand side of the world, (the clients') perspective on ETFs is the intrinsic value of its short-selling opportunities.”
Other possible strategies beyond more traditional money market funds and cash, which are expected to face tighter controls from U.S. and international regulators, include the development of alternative collateral, equity repurchase agreements and mortgage-backed securities, panelists said.