Itaú BBA Executive Launches First Brazilian Securities Lending Association

As the largest economy in Latin America, Brazil now has the region’s first securities lending association, founded by Greg Wagner of Itaú BBA.

Wagner, based in New York as the bank’s head of prime services and global institutional sales, said he decided to create the association as more and more international counterparties and banks asked how to engage in securities lending in Brazil.

“I felt it was very much time to try to organize this in a more efficient manner so that any queries that are coming through from the international community and any of the responses through the exchange or the regulator can be a bit more transparent,” said Wagner. “So everyone can benefit as to what is being discussed and how the mechanics work.”

The goals of the securities lending association include helping financial institutions and service providers enter the Brazilian market and increasing overall awareness of securities lending in the country.

“We want to encourage that participation because it only will help in reducing the lack of liquidity in the lending market in Brazil and create a more efficient market,” said Wagner.

Wagner decided to create a securities lending association just in Brazil rather than a pan-Latin American one because nearly all the outside interest has focused on Brazil, where securities lending fees are significantly higher than in other parts of Latin America because of a lack of liquidity.

As a result, and due to the sheer size of the market compared to others in Latin America, Wagner thinks “the real emergency is with Brazil.”

The association plans to distribute information through a central portal so that the international community can “exchange ideas on a group basis instead of just doing it on an ad hoc, bilateral basis,” said Wagner.

A unique feature of securities lending in Brazil is the requirement to clear the activity through a central counterparty. Brazil’s CCP model requires pooled collateral, rather than designating specific collateral for each transaction. While this can be problematic for some lenders, Wagner thinks the market in general has accepted this requirement, and the association can provide information to those unclear about the details of Brazil’s CCP model. Wagner also said he hopes the association can help the local exchange itself understand the requirements necessary to improve liquidity.

The board of directors, made up of representatives from large custodial banks, will most likely before announced before the end of 2013. The association also plans to open the informational portal and start collecting membership fees over the next few months.