Dealreporter Q&A in Securities Lending Times

18 June, 2015 - 3:35 pm UTC

by Alessandra Castelli @AlessandradR31

Dealreporter’s Alessandra Castelli gives an overview of how qualitative data can improve securities lending models, for the benefit of everyone

The 24th ISLA conference is finally here. What does this securities lending event mean to Dealreporter?

For a start, we’re delighted to be hosting the networking lunch on 24 June. We’ve been a fixture at the International Securities Lending Association for some years and have partnered our subscribers through tricky times from a regulatory perspective. Through our coverage of this terrain and examination of bank capital positions, we’ve followed the impact of leverage ratio changes in the wake of Basel III/Capital Requirements Directive (CRD IV) particularly closely.

But that landscape is settling, in our view, and with greater visibility comes the opportunity for securities lenders, beneficial owners and hedge funds to have confidence in their roles in this new world—and to benefit from the yield deriving from borrow plays around corporate events.

‘Corporate events’ is a broad landscape. What is your core coverage?

We are of course best known as a mergers and acquisitions (M&A) risk arbitrage market intelligence service, tracking shareholder stances, competition and other regulatory approvals and management friction—any and all risks that could see a deal come unstuck, or that could be overcome to unexpectedly see a merger close successfully.

Our core coverage areas also include special situations and equity capital markets (ECM) activity, including rights issues, block trades, convertible bond issuance and initial public offerings (IPOs), so essentially any corporate or shareholder exit situation that might create price moves and liquidity events. Our subscribers need to be ahead of the pack with such information to secure the best yield, regardless of their role within the securities lending universe.

Do you believe a qualitative approach is a route to yield in securities lending?

Of course. We know there are securities lenders tracking borrow availability, inventory and price signals. This is an essential and necessary pre-condition of operating in this space.

But it’s not enough. Having insight into potential corporate events before others in the market can price them in leaves you more yield on the table. It allows the price of a borrow to be established or secured more advantageously.

Knowing the lie of the land in securities lending is one thing. We provide insight and intelligence on those factors that will see that market topography shift. The first roundtable on 23 June will explore which markets and strategies will help generate incremental yield. Greater awareness of corporate and shareholder intentions is a vital tool in that arena.

Forward-looking insights are valuable by their nature. How do you aim to deliver them?

At Dealreporter, we have built editorial strength in depth—for Europe, this means a London headquarters, journalists in all financial centres, an additional layer of sector and transaction specialist reporters, and a team of analysts modelling the impact of our market intelligence. We are of course a global product, so our North America and Asia networks are built in the same image.

We provide our journalists with the skills, resources and freedom to investigate, with the proviso they come back bearing fresh intelligence that advances market understanding. Analysis can be helpful, but we major in news, which is why we are called Dealreporter. We report and break news.

Is negative news on a potential M&A deal the most valuable intelligence for securities lenders?

It’s certainly very actionable. In February, Dealreporter reported potential suitors for online gaming group appeared to have lost interest in buying the whole company. The story received widespread attention and the stock fell 20 percent. But our readers saw it first. We’ve followed up as the process revived amid moves by rival 888. Bid targets remain in the crosshairs even when one deal looks like it might fall through. That’s why we stay with a situation.

But hedge funds short on a stock need intelligence on stocks moving up as well as down, of course. Short covering ahead of competitors is preferable to doing it with the herd.

In April, we reported that Elliott Advisors was stake building in German-listed bid target DMG Mori Seiki AG, which saw that stock rise. This exclusive is typical of our journalists’ attention to detail. Chasing down that kind of information requires lightning speed and a cultivated source base. You need the movers and shakers at the end of the line and willing to talk shop in the 30 seconds they may have for you. Relationships matter enormously.

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