2014 is shaping up to be a busy year for BNP Paribas in securities lending. With the opening of a desk in New York in January the bank is in the process of on boarding its first client in the U.S. and it is also focusing on the Asia Pacific region where it recently opened a principal desk in Hong Kong. In addition, its European profile was raised further when David Raccat was appointed to the board of the International Securities Lending Association (ISLA). Raccat talks about this appointment board and what is in store for the rest of the year.
What is the background to your ISLA appointment?
DR: ISLA CEO Kevin McNulty contacted me late last year with the proposal that I would join the board, which I was very flattered about. The idea is not only to represent BNP Paribas but to also speak on behalf of the French market and to share with the board the ideas, concerns and suggestions that the French market participants can make. I regularly liaise with the major French players and try to act on their behalf and share their ideas with the board. We also organized an interactive event in Paris in March, bringing together the major French participants with ISLA to share our views and concerns in securities lending and repo.
For me it is a great opportunity to connect the French market to ISLA a little bit more and to contribute as much as I can to the work that ISLA is doing. The association is extremely well connected to regulators, including the bridge that they have with the RMA in the U.S., and it addresses all of those regulatory initiatives by very detailed analysis of how it can impact our markets.
We have explained that we are in regular discussions with the French regulatory bodies -through market associations such as AFTI- and have discussed this with other French market players but it was also an opportunity for ISLA to enlarge the debate and to explain what is going on with other European regulators and with global regulators like the FSB for example, which is very much involved in future regulation for securities lending and Repo. So it was a good opportunity to share our respective understandings of what is going on globally and in other markets.
Comment on the success of your collateral management product in the U.S.
DR: We are very excited by the way things are progressing in the U.S with our collateral management product. For the moment the feedback we received is quite positive and we have very good traction. We entered this market as a bit of an outsider as we are much smaller than the big providers in the U.S. but we come with a large global footprint and with strong ambitions. The desk in the U.S. is the final piece of our global footprint as we have a desk in Sydney covering AsiaPac and one in London covering Europe.
It was very important for us to have a desk in the U.S. in order to complete the picture and to demonstrate our ability to act on a pure global basis. This means lending U.S. assets on behalf of a European client or an Asian client and lending Asian securities for a U.S client. We are also an outsider with no historical claim related to cash collateral reinvestment issues. Because none of our clients has ever lost one cent on cash collateral reinvestment we are coming in with a very secure and very new and innovative product offering. We are in the process of on boarding our first client in the U.S. to start the activity in “real life” and that is extremely exciting.
What are the standout factors of the RFPs you are seeing?
DR: There are two dimensions in the current RFPs: cash reinvestment is a topic we discuss with clients and prospects namely how we control and monitor the adequation between the actual reinvestment and the guidelines.
However in the current context of poor rates especially on the short-term curve I would say clients are less eager to take any additional risk by reinvesting cash and are very happy with the idea of taking non-cash as collateral.
When you look at macro market data you see the increasing proportion of the business that is on a non-cash collateral basis, which shows that more and more clients are happy with the idea of receiving non-cash collateral.
They are working out their collateral matrix to accept both fixed income and equities but the idea of taking cash collateral with potentially an additional risk by reinvesting the cash or receiving cash as collateral which could be not reinvested because of the poor rates / yields means you could end up in a position where you transform a net exposure into a gross exposure on your depot bank. This is definitely something that our clients are taking into account and most of our book today is run on a non-cash basis.
What else can the industry expect from BNP Paribas’ in securities lending over the coming months?
DR: In addition to putting the focus on the U.S. with the launch of our desk in New York, we have put a lot of focus on AsiaPac because these markets are very exciting from a securities lending perspective. We’ve just opened our new principal desk in Hong Kong and we are very happy with the way volumes and market penetration has increased over the last four to five months. The market arbitrage activities in the Asia region is for us quite an important area of growth in the coming months and quarters and we put a lot of focus on AsiaPac to increase our franchise, increase our footprint and accompanying strategy because our clients are becoming more global and we want to accompany them in all regions. When we have a client in Europe that is investing in emerging markets we need to demonstrate that we can be a multiple provider in the region and provide a value added product. That is true for cash and FX and its true for securities lending. So the extension of the team in the region is very important for us and it is a clear demonstration that we are putting a lot into it to better understand the fragmentation that is still existing in this region. There will be additional complexity but the more complexity the more exciting the opportunity.
GC Friday Interview: David Raccat, Head of Global Markets (FX, STIR, Securities Lending) at BNP Paribas Securities Services
2014 is shaping up to be a busy year for BNP Paribas in securities lending. With the opening of a desk in New York in January the bank is in the process of on boarding its first client in the U.S. and it is also focusing on the Asia Pacific region where it recently opened a principal desk in Hong Kong. In addition, its European profile was raised further when David Raccat was appointed to the board of the International Securities Lending Association (ISLA). Raccat talks about this appointment board and what is in store for the rest of the year.