Welcome to the 2008 edition of ISJ’s annual
Securities Lending Market Guide
. It has been abusy year for securities lending and borrowing, andthere has been no shortage of press coverage sur-rounding the market and its potential in the future.This guide aims to bring you up to speed with thelatest market developments and act as a referencehandbook to the particularities of this rapidly evolv-ing business.Our special feature examines the last 12 months inthe market and what we can expect from the nextyear in terms of progress. The impact of hedgefunds and 130/30 funds is of particular interest, asthey are the underlying cause of a large part of thegrowth that is happening in the securities lendingmarket at the moment. Securities financing is thebridge between hedge funds, one of the main bor-rowers of stocks, and institutional investors such asinsurance companies, mutual funds and pensionfunds, the dominant lenders of securities.Furthermore, if you believe the hype, the growth oftraditional long only funds’ investment in 130/30strategies could overtake the growth of hedge fundsand become the largest single driver of securitieslending over the next five years.The growth of the market is set to continue,according to reports by a number of financial serv-ices analyst firms. For example, Celent expectsgrowth in the US securities lending market alone toincrease at a rate of 5% per year.However, it has not been smooth sailing for themarket over the last year, as industry practices sur-rounding proxy voting’s relationship to securitieslending and the potentially negative influence ofhedge funds have gained notoriety in the press.Hedge funds in particular, have faced increasedscrutiny for allegedly borrowing to buy votes.The International Corporate Governance Network(ICGN), whose members include some of theworld’s largest pension funds, has publicly urgedregulators to force funds to make detailed disclo-sures of sale and repurchase agreements. TheICGN has accordingly drawn up a code of bestpractice on stock lending in all jurisdictions and iscampaigning for the authorities to support it. DrAndrew Clearfield, member of the ICGN board ofgovernors, spoke to ISJ about his perspective onthe matter for our special feature.The Markets in Financial Instruments Directive(MiFID), due to be implemented on 1 November thisyear, could also mean more scrutiny of lending pro-grammes. It could potentially result in loans beingmade based on price and best execution, rather thanrelationships, thus increasing the transparency of themarket as a whole.With these opportunitiesand challenges in mind, wehave gathered together theleading lights of the securitieslending industry to provideyou with a comprehensiveinsight into the market as itstands today.
Virginie O’Shea Group Editor
It has been a year of great change forthe securities lending market