Securities Finance Americas Guide 2023: Keeping up with the tech

Securities Finance Americas Guide 2023: Keeping up with the tech

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Keeping up with the tech

The most important developments across the securities lending market from a technology perspective over the last 12 months.

This article is part of the 2023 Americas Securities Finance Guide, which can be accessed here.  


Technology developments in the securities lending market can be broken down into three categories; pre-trade, trade, and post-trade.

Many of the tech developments and enhancements over the past 12 months have been those launched by vendors in the trade space, where systemic integration of trading platforms has sought to increase automated trading functionality, explains Ross Bowman, global head of agency lending client management, securities services at BNP Paribas.

“However, no matter how quick and automated trading can occur, without similar developments to the pre- and post-trade space - such as onboarding, trade matching and settlement, and lifecycle event management - efficiencies remain limited,” he says.

Bowman says the challenges of pre-trade, ALD and onboarding of new business into the lending market are being met in the form of tools and developments from market leading vendors that, with a wider adoption by the industry, will increase the speed-to-market of new business.

“Additionally, our industry trade associations, through the push towards a common domain model and new regulation in 2022 in the form of CSDR have also increased the focus of industry participants on the efficiencies needed in the post-trade and lifecycle event management process,” he says.

Varied pace

When asked to what extent technology will play a key role in the move to faster settlement by automating manual processes, Bowman observes technology developments have tended to move at a varied pace as each market participant often adopts and develops enhancements bespoke to their own infrastructure.

“What is needed is a greater and wider adoption of common practices and standards, specifically in the pre- and posttrade environment across the market,” he adds. “This will then ultimately remove the inefficiencies widespread in the market today.”

Joseph Seroussi, CEO & founder of Wematch, raises the current technology trend in the securities lending market of DLT settlements. Banks are investing in that space and Wematch is backing the movement that will facilitate moving from T+2 to T+1 and potentially T+0.

“The industry is still trying to find the best working model with so many different models being used - centralised, decentralised, public blockchain, and private blockchain,” he says. “The cross-ledger initiative is really interesting, mostly in relation to equities but still very interesting.”

He adds that there are benefits both from an ops perspective and also from a trading perspective - with the higher interest rate environment, any fails on repo trades are becoming massive amounts of cash which used to be very small amounts, and that affects the P&L desk.

“We are seeing a trend towards private ledger rather than public with bank-owned ledgers or consortium-backed ventures being the cradle for these initiatives,” says Seroussi. “But we are still in the early days in terms of what is going to be the main format with multiple banks each owning their own ledger and creating multiple solutions.”

New solutions

Depending on the investments that have been made over the last few years he expects to see banks popping up with new solutions or enlarging the scope of what they offer.

“Will we see banks using other people’s blockchain? I think that will happen as well. So, even if you have your own ledger, you may want to use one of your peers,” he says.

The big unknown for Ed Hochstadter, head of securities-based lending sales for North America at Wematch, is whether the banks will drive the change or the buy-side will be required to get into the picture to get the exchange moving faster.

“Whatever great technology is out there won’t sell itself,” he adds. “It needs to be properly marketed and presented to encourage adoption. We are working to level the playing field regarding access to technology by having a very open and collaborative model where we offer the same technology to everyone.”

Both the sell-side and the buy-side know that digitisation is imperative. Manual workflows represent substantial operational and reputational risks as errors slow down operations and in the worst cases lead to settlement failures. The race is on to find more reliable and effective approaches to interests matching, workflow automation, and collaboration to unlock efficiencies and productivity.

Collateral location

According to Hochstadter, dynamic, automated collateral management is all going to be about locating where the collateral is and moving it as fast as possible, regardless of blockchain.

“Blockchain will obviously help that movement massively even though we still have challenges on how to reuse the tokenised assets,” he says. “There are still some challenges from a legal standpoint on the tokenisation of assets, such as where they sit, how you handle them, and how you reutilise them which are pending in terms of a clear view of where the market is going.”

Then there are technical issues such as key management and security. On a private ledger, the security of the digital assets is much less of a concern because the assets will stay on the same blockchain and be handled by large institutions that have no problem managing these kinds of issues.

When asked about the extent to which technology will play a role in facilitating faster settlement by automating previously manual processes, Tom Veneziano, head of product, Americas at Pirum Systems observes that getting to real time processing is going to be a key factor for a lot of settlement changes that are coming through.

“From an investment perspective, firms are looking at their expense line more acutely to ensure they are getting value for the services they adopt,” says Bob Zekraus, COO and head of Americas at Pirum Systems. “There are a lot of solutions out there but some are only suitable for specific use cases.”

He adds that most clients understand the network impact that a firm like Pirum delivers. In other words, when a client adopts a service, how does that not only benefit their firm but also make their counterparties better?

Investment appetite

“There is appetite for investment, it is just that it is becoming more scrutinised and measured,” says Zekraus. “I also think it is aligned to where people see future value for developments that bring value to the wider industry.”

While there are opportunities for improvement and differentiation, automation is expected and present in most processes. That is the view of Betsy Coyne, senior vice president client relationship management at eSecLending, who adds that technology will play a major role in the move to T+1.

“Much of that will come from industry utilities (Pirum, Equilend, Loanet, etc.) who are developing new platforms that improve workflow management and increase transparency,” she says. “The use of industry utilities that offer a standardised hub of information is a valuable tool and will help to alleviate challenges that exist when using bilateral or one-off technology solutions that aren’t scalable.”

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