The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2021 Euromoney, a part of the Euromoney Institutional Investor PLC.

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.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree