NYSE Euronext, the U.S. exchange company trying to combine with Deutsche Boerse AG, is closing its SecFinex Ltd. securities lending unit as markets falter and banks and companies seek to cut expenses.
“The company has struggled to gain traction and the current economic climate has led the shareholders of the company to review their strategic investments,” James Dunseath, a spokesman for NYSE in London, said in a telephone interview. “They have determined that providing further financial support for the company is no longer a strategy they can continue to pursue.”
NYSE bought 51 percent of London-based SecFinex in 2007, partnering with banks Societe Generale SA and Fortis of the Netherlands. At the time, the exchange said securities lending was a growth market.
The unit joined with the Depository Trust and Clearing Corp. in 2009 to start a U.K. central counterparty service, as funds and banks sought to reduce risk amid the worst financial crisis since the Great Depression. The service came after Lehman Brothers Holdings Inc.’s bankruptcy highlighted the risk of borrowing and lending stock.
“We believe that central clearing will play a major role in the securities lending market over the long term,” Dunseath said today. “However, it is not presently, and will not be a high priority for banks until there is a determined regulatory push and Basel 3 starts to impact capital requirements, which is not likely to happen for another year to 18 months.”
Under the Basel accord agreed upon last year, banks are required to more than triple the core capital they hold to guard themselves against insolvency and also to force them to stockpile easily sellable assets to survive a short-term funding squeeze. Governments have pledged to put in place national rules to implement the accord by the start of 2013.