Julian Smith, a Director and co-founder of Opes Prime said the securities lending and borrowing sector has not been good at communicating about itself, perhaps believing the operation too complex for media and general investors.
"Now is the time for securities lenders and borrowers to get the positive message out there, promote transparency and educate investors", he
But Mr Smith
warned that knee-jerk reaction regulation could dry up much needed capital.
"Numerous academic studies have shown that the increased liquidity provided by securities lending actually reduces volatility in the overall market", said Mr Smith
said this important difference allows securities lending arrangements to have greater flexibility in the kinds of stocks that can be financed as part of an overall portfolio: for example, a securities loan makes it easier to finance small cap and global stocks.
But Mr Smith
Rapid growth in financing and other prime broking products might have surpassed the ability of some firms to manage the overall process. Investors may unwisely use these services primarily as speculative tools rather than primarily for risk management. Mr Smith
said that recent negative news regarding securities lending has not decreased demand but could have the positive outcome of creating greater investor awareness and scrutiny."Securities lending is best used as a part of investor risk management, not a form of speculation on market trends."He
said the combination of highly sophisticated tools and growing investor numbers means that prime brokers need to have world best IT platforms to maintain processes.
said that financial services firms and investors needed to ask the following questions before engaging in securities lending arrangements with a prime broker.