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Cash reinvestment profits squeezed
31 October 2011
Market conditions are challenging the traditional business model for cash reinvestment and volumes are down as a result. Alastair O’Dell reports
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cash reinvestement
securities lending
The progressively intensifying market conditions of 2011 have made cash reinvestment securities lending increasingly difficult – and the strain is evident in volumes. Data Explorers figures reveal that the use of cash relative to non-cash has been decreasing in all major markets since at least 2009 (see table below).
Over this period in Europe cash has fallen from 34% of all securities lending collateral to 25%; in Asia ex-Japan from 46% to 35%; and from 47% to 27% in Japan. In both the traditionally non-cash UK and cash-dominated US, cash has also been in relative decline.
Gareth Mitchell, EMEA head of trading, securities finance, Citi, says: “Most clients have made some changes to their risk profile. And yes, there are clients that have pulled out of cash reinvestment and are purely doing non-cash.”
The reason for cash falling out of favour stems from two compounding reasons. Firstly, beneficial owners have tightened...
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