Canada
The stability of the Canadian securities borrowing and lending market has given domestic players the confidence to conduct cross-border business

The likes of CIBC Mellon and Scotiabank—two of the bigger Canadian outfits—have boosted their cross-border capabilities in recent years, signalling to the wider world that they are global players in securities borrowing and lending.

For example, Scotiabank’s prime services division has securities lending desks in London, New York and Singapore, and it boasts the financing of US convertible bonds in its product offering. In 2011, the bank acquired a synthetic prime brokerage platform and team from Daiwa, further enhancing its prime brokerage capabilities.

James Treseler, managing director at Societe Generale Corporate & Investment Banking, says: “Why are Canadian banks so attractive outside of Canada? Everyone loves Canadian balance sheets—they’re conservative, and very liquid. During the banking crisis, no Canadian banks were affected.”

“As we’ve seen more and more regulation in the US and Europe, it’s forcing some of the larger players on both sides, of the market—whether it be in agency lending side or prime services—to scale back some of their activities. There’s market share available to Canadians. I think they see that as global market share.”

Canadian banks are moving into Europe, South America and Asia, says Treseler, but how are securities lending heads convincing their bosses to set up desks?

“If I was them, I’d be pointing at the market share that is available to us,” explains Treseler. “If I have a prime services group, that means I have to be able to cover European underlying, which in turn means that I have to be in Europe.”
“You can be in Hong Kong and cover Australia, but you cannot cover Europe from Toronto, in the same way that you cannot cover the US if you’re in London—you’re just not in the market.”

Europe in particular has always been an important source of demand and revenue for Canadian beneficial owners, says Rob Ferguson, who is president of the Canadian Securities Lending Association and senior vice president of capital markets at CIBC Mellon. He adds that “demand for the securities belonging to Canadian owners is always strong”.

“In the last couple of years, the demand has fallen off a bit, and the size has dropped somewhat. In terms of whether it is becoming more important, I would say probably not. But you always have to look and see whether having a local presence is going to generate more opportunities and revenue for your programme participants, and sometimes that answer is going to be yes—even when that market isn’t at its highest.”

In October last year, CIBC Mellon and BNY Mellon announced they were merging their securities lending desks, a move that would give the former’s clients new opportunities for incremental revenue in markets around the world and the latter’s clients the potential for improved returns on Canadian securities.

Commenting on the merger last year, Ferguson said: “[BNY Mellon’s global head of securities finance] James Slater and I began talking a few years ago. We discussed the challenges and the market, and realised we had a unique opportunity here in that our programme, which has been very successful since the beginning, had one desk, in Toronto. We had people who would come in early in the day to cover the European time zone, but there was some limitation around servicing the world out of just Toronto.”

“James’s group is significantly bigger, and has desks in Hong Kong, London, New York and Pittsburgh, but BNY Mellon doesn’t have a desk in Toronto. Canada is a very large and important market in securities lending and James saw an opportunity for BNY Mellon clients to be better served in the Canadian market.”

Ferguson explains: “The continued importance of cross-border demand was in fact a key aspect of our decision to merge CIBC Mellon’s lending desk with BNY Mellon’s.”

“We did a very good job of lending European securities for our beneficial owners prior to the merger, but having the BNY Mellon local presence has made it easier for us to do that and resulted in more opportunities.”

“I think people are generally going to look and say, ‘what is the size and cost of the opportunity’, weigh that against the relevant risk factors, and go from there; having a strong local presence can in some cases put you in a good position to gain insight into both opportunity and risk factors.”

Concluding, Ferguson says that Canada has enjoyed a period of relative strength and stability.

“We as much as anybody else in other jurisdiction, are focused on finding efficiencies and making sure that we are managing risk appropriately. We are in a good position to realise some opportunities without some of the pressures that other jurisdictions may have.”

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