Importance of Functioning Repo and Securities Lending Markets
Posted 27 May 2011 - 8:03am by Roy Zimmerhansl
I was recently in Split, Croatia speaking at the Clearstream 7th Summit for an Enlarged Europe. I was fortunate to be invited back after appearing as a panellist at last year’s event. My topic was “The Importance of Functioning Repo and Securities Lending Markets”. Obviously I could have gone on for hours rather than the 45 minute speaking slot, so it was quite a challenge to summarise the key points for this audience, largely comprising financial firms and regulators from Central and Eastern Europe. You can download a copy of the presentation here: Importance of Functioning Repo and Securities Lending Markets
There is no question that while some debate continues around short selling, collateralised finance is part of the oil that continues to lubricate the financial markets. And if there is any lesson the world has learned over the past few years it is that liquidity is the key to functioning markets. Defaulting assets, including some of the most exotic instruments, had less global impact than firms’ inability to borrow money generally and finance their securities specifically. So regulators have focused on liquidity as the order of the day, and this will continue.
The short selling argument will continue. Complaints about short selling and speculative trading started over 400 years ago with very little advancement in the argument against the practice since then. Despite the overwhelming academic and practical evidence in favour of the net benefits of short selling, some people remain unconvinced. I think we have hit a wall. People with entrenched views on both sides of the question will not be moved. So the objective has to be an uneasy acceptance of the practice and a shift to questions of control, regulation and monitoring. That’s where we are, and it is no surprise that agreement on these issues is no easier to come by.
Just as a final note, I have worked with Clearstream on a number of occasions over the past 18 months. I have had nothing but positive experiences with them – everything runs as planned, to schedule and with a high degree of quality and professionalism. A pleasure to work with.
PS. Sadly, later today I will be attending a memorial for Ramy Bourgi, a former colleague from my days at Chase Manhattan Bank. He passed away recently to the surprise of us all. Ramy was a professional, a gentleman, and quite simply, a great guy. A great loss for family, friends and colleagues.