Donato D’Eramo
RBC Investor & Treasury Services
As the market continues to develop, the country’s banks are putting more focus on growing their businesses south of the border and internationally. Donato D’Eramo of RBC Investor & Treasury Services and the Canadian Securities Lending Association explains what’s to come for Canada

How has the Canadian securities lending market evolved since the CASLA conference in Toronto last year?

Canada is the second largest securities lending market in the world with approximately CAD 1.36 trillion in lendable assets (according to Datalend, as at 25 May 2017) and active loans of CAD 166 billion, so the industry is mature.

The sector continues to focus on balance sheet and capital ratios as both affect borrower and lender behaviour, while the growth of non-cash capabilities, term and cash offerings and collateral optimal solutions for stakeholders remain front and centre.

The energy sector plays an important role in the Canadian economy and as the price of oil remains at suppressed levels, business investments continues to wane. The mining sector in general in Canada has seen lower initial public offering (IPO) launches as well as mergers and acquisitions (M&A) activity—both of which manifest demand in various ways in securities lending.

The demand for high-quality liquid assets (HQLA) continues to evolve with Canada being a large issuer of government and provincial debt, both of which are considered level one assets under the Basel regime.

What are the main challenges that CASLA is looking to tackle?

I would say that the challenges from 2016 remain in play this year. Our priorities remain:

• Collaborating with regulators and industry partners to implement change and support an efficient and secure marketplace
• Developing strong linkages with similar global trade associations
• Advocating for the common interests of securities lending market participants, including custodian banks, beneficial owners, asset managers and broker-dealers
• Educating the public about the role of securities lending in capital markets

We also continue to focus on regulatory themes that affect capital and leverage ratios and potential downstream impacts for all constituents, including banks, broker-dealers and agent lenders. Working on regulations affecting certain segments of the market, including mutual funds and the national instrument, continue to be priorities.

What makes the Canadian market stand out from its southern neighbour?

Canada is a very healthy securities lending market with utilisation rates on Canadian equities almost 60 percent higher than that of US equities. Historically, Canada has followed Europe in how its securities lending programme has been developed with non-cash collateral being the dominant form of collateral and the legal construct similar to Europe.

From a macro perspective, there is some uncertainty around consumer debt levels in Canada and its impact on the Canadian banks. Canada has been operating in a very low interest rate environment—slightly lower than the US.

It could be argued that Canada was overlooked in the past as a lending market. Do you feel it now gets the recognition it deserves as a strong source of revenue?

I wouldn’t say the market has been overlooked in the past but potentially viewed as a general collateral market concentrated in non-cash collateral. As the market continues to develop, collateral is diversified and the Canadian banks are putting more focus on growing their businesses south of the border and internationally. Cash collateral has been a growing space within the Canadian market with now more than 20 percent of balances versus cash. The specials market in Canada has picked up in the past year, which has contributed to stronger returns for beneficial owners.

The market continues to cope with balance sheet constraints and increased regulation where solutions within the securities finance space have played a role.

What are the top internal and external challenges facing the Canadian market today?

I think in addition to the themes mentioned earlier about the challenges that CASLA is addressing, continued regulatory pressure and their ongoing impact remains a challenge.

Securities lending is very much a byproduct of a healthy functioning financial services industry. From an external perspective, the current geopolitical landscape in the US creates uncertainty within the markets and has had increased pressure on the Canadian economy due to the future possible North American Free Trade Agreement changes. SLT

Interviews
The latest interviews from Securities Lending Times
Features
The latest features from Securities Lending Times
SFTR dominated ISLA’s 26th Annual Securities Finance and Collateral Management Conference, but there was also room for MiFID II, Brexit, equities as collateral and more. Drew Nicol was there to report on the highlights
The economic environment, regulatory pressures and technological advances are creating entirely new opportunities for the industry, says Bimal Kadikar of Transcend Street Solutions
Join Our Newsletter

Sign up today and never
miss the latest news or an issue again

Subscribe now
Those that lead and innovate will strive to provide competitive advantage and agility. Helen Nicol of Lombard Risk explains how
J.P. Morgan expects to see a continuation of the increase in lendable assets with Taiwan clients and anticipates more interest in this product, says Frank Niu
Francois Maury of Natixis examines how the Japanese market has fared and what it means for borrowing and lending. Drew Nicol reports
Super funds are again looking to securities lending as a source of incremental revenue, says Natalie Floate of BNP Paribas
Asia has an ageing system of fragmented processes that have failed to keep up with the rapid growth of the markets and increasingly complex trading strategies, according to Laura Allen of Trading Apps
Businesses can strategically address their collateral and liquidity management operations and regulatory needs by adopting a more holistic integration approach, says Bimal Kadikar of Transcend Street Solutions
Country profiles
The latest country profiles from Securities Lending Times
Being an exciting emerging market is all well and good, but how long can that status really apply before interest wanes? India is doing its best not to find out
Hugh Leonard, director of repo sales at Australia and New Zealand Banking Group, explains how the Australian market has excelled in recent years
Asset Servicing Times

Visit our sister site
for all the latest asset servicing news and analysis

assetservicingtimes.com
Securities lending is in a strong place in Australia. Dane Fannin, head of capital markets in the Asia Pacific at Northern Trust, explains the available opportunities
Federico Ortega Gilly of Mexico’s Nacional Financiera explains why his country’s securities lending market is ripe for foreign investment
Russia’s National Settlement Depository has had a busy year making its securities finance market more robust and attractive to outside investors. The CSD’s Alina Akchurina explains the innovations being implemented
South Africa’s securities lending industry is on the verge of embracing a modern T+3 settlement cycle that could boost the country’s market
Experts on Canada’s securities lending industry discuss the market’s qualities compared to others, finding it to be a strong source of HQLAs
A difficult end to 2015 has not deterred securities borrowers and lenders in Asia, where certain markets enjoyed significant growth and offered new opportunities