« Archives in September, 2010

Asian Stock Exchanges Lead The Way

September 12, 2010 / admin posted in finance / Comments Off

At one time many of the stock exchanges in Asia including:  Hong Kong, Taiwan, and Singapore were once seen as emerging markets and to a degree, they still may be today. This has changed over the years as many US and Canadian businesses have set up shop in these up and coming countries.  The Singapore and Hong Kong Exchanges have become more transparent, offer longer trading hours, and provide more flexibility with clearing and settlement. Many international brokerages and banks such as Goldman Sachs and Credit Suisse see these countries as growing players in the securities market and have focused much of their attention to supporting that growth.

Todd Rome
Southern Lending Solutions

Return of Shares Process Part 1

September 7, 2010 / admin posted in lending / Comments Off

The bulk of our loans are non-recourse and our anecdotal evidence tells us at least 75% of these deals end up in default (usually an elective default by the client as in ‘my shares have dropped by X% so I’m going to elect to take the money I’ve gotten and not pay you back’).

If this is true then how are the shares managed when it is being treated like a loan and our clients want the shares back?

After the initial selling of some of the position upon closing, the lender typically holds some of the stock in inventory.  Active share management takes place at the 6 month mark. At this point, the client has made 2 quarterly payments on time and the lender treats it as a loan from here instead of a multi step, multi year exit strategy out of the stock.

The active buying and selling of shares takes place here and in essence the lender becomes a market maker in the stock.  This means our lender is holding some in inventory at all times as well helping to provide liquidity for the stock by filling some of the buy and sell orders.  In fact, there are often cases where the lender will actually hold more than 100% of the funded amount in their inventory meaning they have bought not only enough to provide shares to return but additional shares as well.

Stu Lustman
Southern Lending Solutions

Securities Lending w/Recourse: Who Does It?

September 2, 2010 / admin posted in Uncategorized / Comments Off

When discussing recourse loans within the framework of securities lending, we have to understand who is most likely to offer such a program.  Many firms offer securities lending including:

Banks

Brokerage firms

Trusts

Hedge Funds

Insurers

Private Equity Groups

So who is most likely of this group to offer recourse? The bulk of the money is made in securities lending for the lender by trading in and out of the shares and with recourse, since ownership and title stay in the client’s name, the ability to sell the shares is eliminated.  This instantly eliminates Private Equity groups and Hedge Funds.

So we must need a group where actually having the assets, even if in someone else’s name, still benefits them. Does this sound familiar?  Your bank deposits are in your name but the bank still gets to use them for their capital needs, known as required reserves allowing them to lend more money. The same is true of an insurer but instead of required reserves its called statutory capital. So banks and insurers do it and perhaps some brokerages might if they leave these securities out of their own proprietary trading accounts, which happens but is unlikely. As for trusts, whether they work in recourse lending or not is on a case by case basis.

So if recourse and ownership/title matter to you, look for a bank or insurer or a firm that works with one.

Stu
Southern Lending Solutions