Robert Chiuch | Managing Director, Global Head of Equity & Fixed Income Finance, BNY Mellon Markets
Simon Derrick | Chief Currency Strategist, Head of the BNY Mellon Markets Strategy Team
Richard Marquis | Managing Director, Regional Head of Equity Finance, Americas, BNY Mellon Markets
Paul Solway | Managing Director, Regional Head of Securities Finance, Asia Pacific, BNY Mellon Markets
Simon Tomlinson | Managing Director, Regional Head of Equity Finance Trading, EMEA, BNY Mellon Markets
Phil Zywot | Managing Director, Regional Head of Equity Finance, Canada, BNY Mellon Markets
Panelists at a BNY Mellon roundtable in January of 2016 took a closer look at recent market trends in the areas of equity finance and equity securities lending. The discussion focused on the trends and drivers around recent market volatility and the resulting impact on the equity finance markets across the globe.
The Drivers of Market Volatility
What is driving the extraordinary market volatility seen in a wide range of assets across the globe? Over the last 18 months we’ve seen far more highly volatile days within the foreign exchange market and more in the asset markets than we have recently come to expect. While a lot of attention is given to the events in China, oil and the performance of the European asset markets, a retrospective view of the last 15 years provides a good backdrop.
Source: Federal Reserve/Reuters
—Simon Derrick, Chief Currency Strategist
It’s Been a Challenging Year
Why do we concern ourselves with the underlying market values or asset performance? There are major themes that centre around asset value, but the most direct relationship is that fees earned on lent securities and the value of collateral received are based on the underlying asset values.
— Richard Marquis,U.S. Regional Trading Head
— Simon Tomlinson,EMEA Regional Trading Head
— Phil Zywot, Canada Regional Trading Head
— Paul Solway, APAC Regional Trading Head
The Trend Toward Collateral Flexibility and Term Trades Collateral plays a vital role in a dynamic securities finance marketplace, and agent lenders need to monitor the ratio of cash to non-cash collateral.
In the U.S., approximately half of the non-cash collateral can be attributed to the pledging of equities.
Europe has usually been tilted towards non-cash collateral, but this is changing largely because of quantitative easing. Europe now has a significant cash collateral market.
APAC has a significant non-cash bias.
Ten to fifteen years ago the Canadian market was a non-cash market, with about 90% of the Canadian market non-cash (mainly sovereign debt as collateral) and 10% cash. There has been a shift over the last few years with non-cash collateral now comprising about 85%, with equity collateral making up 20% of the non-cash space.
Source: Internal BNY Mellon data
So What Are the Key Takeaways for the Remainder of 2016? Follow the actions of the Fed and the European Central Bank in the face of this market volatility. Additionally, it will be interesting to follow the direction of China’s currency policy which can add to volatility and feed into the broader assets market.
— Robert Chiuch, Global Head of Equity & Fixed Income Finance
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