Following a number of significant changes at Cantor’s Prime Services division, Noel Kimmel and Allen Wolkow explain how the business has evolved
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SLT: How do you see the securities lending market overall at the moment?
Noel Kimmel: We’ve seen a fair amount of recovery, although the issues that we had as a result of the financial crisis have not fully subsided. There remain issues where beneficial owners have concerns - reinvestment is an issue where clients continue to feel vulnerable and there are issues around safety and soundness, counterparty risk and the return of assets/collateral.
These issues are no longer at the forefront of people’s minds like they were two years ago, but it is still a factor.
The industry remains very active, but it is also being hindered by the overall low level of interest rates, which leads to extreme negative rates for hard to borrow securities and anemic reinvestment levels.
SLT: Why have you decided that now is the right time to push securities lending services?
Kimmel: For the 15 years Cantor has had stock loan and securities lending capabilities, and we were active in the market as a function of our trading and sales business.
When I joined Cantor in 2009 to build the Prime Services division, our idea was to reorganise the securities lending effort as part of our Prime Services business. I wanted to make it more client-focused, and dedicated to understanding how we can benefit clients’ needs in the securities lending market - whether that’s sourcing stocks for their short positions, working on rates or simply advising them on securities lending.
SLT: What will your main focus be on?
Kimmel: We’re trying to create a single point of contact for clients where we can locate and source hard to borrow stocks and finance positions. One of the most interesting developments is that the traditional sources of hard to borrows are changing - hedge funds often find themselves in possession of the stocks that are most in demand, so we are going to be able to tailor our service to cater to that area of the market.
Allen Wolkow: We can perform these functions whether our clients prime with us or not - we have the ability to provide an alternative and we also concentrate on providing hedge funds more personalised service regardless of their AUM or securities lending reach.
SLT: How will the securities
lending team fit into the Prime
Services division?
Kimmel: The securities lending team is fully integrated into our Prime Services platform, interfacing with most clients on a daily basis. Our mandate is to serve our clients providing them with accurate market color and optimal rates.
SLT: Will existing clients of PCS Dunbar notice any difference now they have moved to Cantor?
Wolkow: I’ve been involved on the hedge fund side of the industry for over 25 years and there are always two questions that a fund will ask, regardless of the provider it uses: how can you help me when it comes to capital introduction; and how can we borrow specials? This hasn’t changed, and our job will be to continue to help them with those issues.
SLT: Is the size of the firm now a big issue? Are clients happier with a larger organisation rather than a bespoke provider?
Kimmel: Cantor is uniquely positioned to serve its clients, especially the middle-market hedge fund universe which we are focused on. The firm’s global footprint and comprehensive capabilities give us an advantage over other mid-size level smaller competitors. We’re able to provide personalised service regardless of the size of the fund.
SLT: How do you see the future, both for the industry and for Cantor’s securities lending operations?
Kimmel: We’re very excited about Cantor’s enhanced capability as it differentiates us from our competitors. The fact is, we have an independent securities lending team within Prime Services focused on our clients’ needs. Since Cantor does not have a proprietary trading effort, we trade on behalf of our clients. This means our securities lending effort is perfectly aligned with our clients’ interests. We’ve been in the business for a long time, but the focus remains the same.
Wolkow: The current market environment is seeing more and more hedge fund start ups and more start ups means more securities lending. And as they grow, and rates change, the market will only increase. And that is going hand in hand with how we plan to grow.
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