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Both a lender and a borrower be

With trillions of dollars of securities lent or temporarily sold each day the risks, once thought minimal, began to look higher in November. There's a rethink on counterparty risk and the practice of making a spread on lower-grade collateral, but the credit-spread business is growing. Michelle Celarier reports.

Securities lending has been called an "invisible business" and a "shadow market". There are no screen quotes, no mandated disclosures and no balance-sheet reckonings. The daily trillion-and-a-half dollars traded in this market are only noticed when there's a crash or a sudden surge in interest rates.

But securities lenders and repo traders say proudly that their business rode out the recent turmoil with no loss of money and only minor adjustments to market practice. "We're spending more time with our risk managers," says Mark Katzelnick, head of global equity finance at ING Barings in New York, "looking at volatility and counterparty risk."

In 1994 there was more general panic, triggering intraday calls for margin, as lenders scrambled to adjust the level of collateral to volatile market prices. In last year's Asian meltdown such frequent margin calls were ruled out by the time zone difference but lenders seemed to have sufficient cushion. Nevertheless, at least one firm has put two people full-time on margin management.

The credit quality of the counterparty is the bigger priority. "Counterparty risk is even more of a concern than market risk," says Bill Foley, an equity repo trader at ABN Amro in London.

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