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How lending queues work
19 December 2006
Every lender has a slightly different approach to queuing, and has incentives to put some funds above others. The industry needs greater transparency driven by the inquiries of beneficial owners, says Maria McGrady.
Beneficial owners spend a lot of their time, money and effort working out which lender is right for them. Should I use a custodian, a third-party lender or even lend directly? Once I've made that decision, which isn't easy, I have to distinguish between the many different agents and custodians. I have all their pitching documents, but how far can I trust them? How many contain sins of omission? I could use an external consultant to help me pick, but are they worth the money?
Throughout this process, beneficial owners consider a wide variety of factors, including performance, price and competition. But they rarely focus on how their stock is actually allocated to particular borrowers once it is in the lender's pool. This is often because the technical detail of the system is hard to follow, or because the allocation gets shrouded in general commitments, such as, "we outperform all...
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