Jon Whiting of State Street Global Markets provides a short update on Latin America for agent lenders and beneficial owners, revealing that the continent is on its way鈥攊n Brazil at least
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How would you describe the current state of securities lending in Latin American markets such as Brazil, Mexico and Chile?
Securities lending is quite well established for onshore participants in Brazil and it鈥檚 developing for non-local entities. The agent lender and beneficial owner communities are increasingly knowledgeable of Brazil鈥檚 lending market structure given their interest in the market鈥檚 potential return relative to more mature lending markets.
We鈥檝e participated in Mexico鈥檚 developed lending market for a number of years. It鈥檚 an efficient, same-day settlement market with strong supply liquidity, but there are limited pockets of demand.
Finally, while we see some demand for Chilean equities鈥攁nd particularly for those held by onshore lenders鈥攁 tax withholding issue in connection with cash collateralised loans remains.
Is any country (eg, Colombia, Peru and Chile) closing on Brazil in terms of market cap and lending activity? If so, what would you attribute this to?
I don鈥檛 believe any of the countries listed are close to Brazil in terms of market cap, lending volumes or development of their lending structures at this time. We鈥檝e seen initial interest in Colombia, Peru and Chile, but I would say it鈥檚 muted at best. On a relative basis, the interest for the latter Latin American markets is minor in comparison to Brazil.
What is the situation with collateral in Brazil?
Collateral can be held offshore in Brazil, but it would be in addition to the collateral requirements documented by the BM&F Bovespa/BTC. I don鈥檛 think the ability to hold collateral offshore (as the primary collateralisation of lending contracts) is an absolute must for Brazil to become an established lending market for offshore entities.
However, the current collateral restrictions definitely limit the growth and total size of the Brazilian lending market given that they essentially prevent certain client types and clients from certain domiciles from participating.
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