GC Friday Interview: RMA's Fran Garritt on Takeaways From the Securities Lending Conference

Last week, RMA held its 31st annual securities lending conference, which was held in Naples, Florida, this year. Since last year’s conference in Boca Raton, certain conversations shifted, such as moving from how the Fed will taper quantitative easing, to more talk this year about when the Fed will raise interest rates. For regulation, attendees spoke a bit less about how leverage ratios might affect the business to actually discussing solutions, such as the use of central counterparties (CCPs) and non-cash collateral. Fran Garritt, director of securities lending and market risk at RMA, discusses his takeaways from the conference.

GC: How did the conference live up to your expectations?

FG: This year’s conference exceeded my expectations, and it was our largest attended conference for securities lending since the crisis, which is a good sign. The panelists discussed timely and in-depth topics, such as how CCPs can help solve some of the capital challenges, to the thoughts shared during the Leadership Panel around the supply and demand mismatch for repo, with regulations incenting lenders to go short and borrowers to go long. We had honest and detailed discussions that helped participants understand some of these very important topics. The conference co-chairs, Keith Haberlin and Fred Nadd-Aubert, along with the conference committee and RMA staff, put together panel sessions with experts giving their insights into very relevant issues facing the industry.

GC: What differences have you noticed this year from years past?

FG: We’re flushing out more of the details of U.S. and European regulation. The continually moving target of the net stable funding ratio (NSFR) and other regulations are starting to close their comment periods and are preparing for 2015 to 2018 implementation. Still, there are many moving targets to prepare for or to submit comments on.

GC: Are there any particular themes coming from the conference that RMA wants to focus more on?

FG: We continue to have a major focus on regulation, both in the U.S. and globally, which continue to dominate conversations for lenders and borrowers. Various ratios continue to affect securities lending and participants’ balance sheets and capital impacts. Efficiencies and credit-enhanced businesses such as CCP’s are being reviewed for usage by agents and are already used by borrowers. Additionally,, non-cash lending is becoming more important to agents as well as borrowers in the U.S. due to its beneficial regulatory treatment. Brian Cahalan, co-chair of SIFMA Securities Lending Society, noted at the conference that SIFMA is working on initiating a rule change in the U.S. to allow for the use of equities in non-cash collateral, which is something that RMA supports.

GC: What do you hope participants work on leading up to next year’s conference?

FG: Participants are feverishly working on many legal and regulatory activities. Additionally, many regulations that have been finalized are now being implemented by securities lending operations and technology professionals. We encourage the industry to interact with their operations and technology teams as the shift moves from focusing on the regulatory burden to actually implementing some of these changes.

Also, the discussions at the conference showed more acceptance of CCPs, but we still need to work on making this model more appealing [or usable] for/by agent lenders in order for securities lending to be RWA (risk-weighted asset) and capital efficient. The OCC is looking to develop a methodology for agent lending institutions to be securities lending related clearing participants, and it would be great to see some progress on this front. I hope that by next year, U.S. agent lenders can start to participate in a CCP platform. RMA has proactively started preparing a request to the U.S. Department of Labor to allow ERISA (Employee Retirement Income Security Act) plans to gain an exemption to transact with a CCP.