You have been in your new role at GLMX for about three months. Can you give us an idea of what you are focusing on?
It has been a quick three months, and it is worth taking a minute to explain how I arrived in this position. For the majority of my career, I was a securities finance trader, focusing on securities lending, and a manager responsible for building, scaling, and leading businesses for global banks. I saw first-hand the multiplier effect that properly developed and agile technology had on the growth of my businesses, so I always worked with internal technology teams and external providers to solve many operational challenges across day-to-day activities. These endeavours led to enhancements across all aspects of trading, including gaining better access to liquidity, improved operational efficiency, and ultimately to more profitable business. I am a staunch believer in the benefits that technology delivers to the market. Three years ago, I left my position as global head of prime services, client capital management, to lead the US expansion of a technology provider. You could say that I put my money where my mouth — or passion — is.
Earlier this year, I saw a unique opportunity to help bring long overdue change to the securities lending industry (SBL), the industry in which I spent the bulk of my career and where I have made lifelong connections. There is currently a significant prospect to evolve market structure to be more resilient and efficient. Borrowers and lenders are aching for alternatives. What was fit for purpose over 20 years ago is no longer sensible for a rapidly growing marketplace. Although there is a general agreement amongst practitioners about what is needed, there remains some confusion about the solutions out there, and uncertainty as to the most efficient and, importantly, practically implementable path ahead. This makes for many interesting conversations with clients and their decision-making units as both small and large institutions cannot afford the resources and time for a misstep.
I joined GLMX because of the people, product and platform. The firm’s existing technology offering combined with its fastidious client-centric approach to development, make it uniquely suited to help the industry effect this change. Leveraging my market experience, product knowledge, and deep network, my primary focus is to accelerate market adoption of GLMX’s comprehensive, fully built, fit for purpose securities borrow and loan technology.
As a sponsor of the upcoming International Securities Lending Association (ISLA) Americas conference, the team and I have a robust client-focused agenda, from hosting a welcoming event to scheduling over 40 meetings with active and on-boarding clients, and prospective clients looking for solutions. The chance to have an influence on market structure in such a significant way does not come around often.
The securities lending market is forever evolving, do you think the industry is moving forward, and at what pace?
Evolving is a very good way to put it for a market that has historically been slow to pivot and adopt change. But we have seen green shoots over the last several years to accelerate the pace of change — especially in a technologic sense. Some recent momentum can be attributed to a robust regulatory agenda, a global pandemic and mitigating single point of failures. I do think that the market has, and is, moving forward. The statistics bear this out.
Since the trough in the market in 2009, during the ‘Great Financial Crisis’, there has been significant growth in the both securities on loan and access to liquidity, measured by lendable securities availability. The chart below from S&P Global Market Intelligence Securities Finance provides a good representation of this long-term trend. You can see securities on-loan values have increased approximately 75 per cent to around US$3.5 trillion across equities and fixed income, and availability is approaching US$41 trillion. Near-term growth is impressive as well, with availability and on-loan increasing 18 per cent and 19 per cent year-over-year, respectively.
Additionally, with year-to-date fee revenue for the sector nearing US$8 billion, and an estimated 600 firms participating in global securities lending, there is a significant responsibility to advance how liquidity is accessed and trades are executed and managed.
As more liquidity is looking for a route into the market to support the growing demand for securities, only technology can support increased volumes, lower latency, mitigate operational risks and automate and digitalise all trading bands across asset classes, from matching of high volumes, low margin easy to borrow and general collateral (GC) flows through the intrinsic value layer of warms, specials and hard-to-borrows.
With so many moving parts, connectivity is the lifeblood of SBL. Connecting directly with each counterpart is not conceivable to scale one’s business. That is why the market has reached an inflection point and needs to embrace change.
You mention changes occurring in the SBL market. Can you provide an overview of some of these changes you are referencing?
Specific to technology, over the past few years the SBL market has been faced with the unique challenge of balancing its growing adoption and dependence of innovative technology across the trading lifecycle with how to optimise and ensure resiliency around their use.
The market has been discussing resiliency for years but has not come together to find and adopt alternative solutions and, unfortunately, the need for redundancy became all too apparent earlier this year. Now there is urgency and determination to support diversification of technology providers and resolve some areas of concern including the single point of failure conundrum. And as you can imagine, there is no shortage of ideas.
I would generally describe the market offerings in three broad categories: technology that roughly fits into pre-trade; trading and execution; and post-trade.
Messaging hubs that provide rule-based matching logic fit into pre-trade. The majority of electronic SBL trading done today is seen as a utility and falls into this category. This type of offering centres around connectivity — connect once to gain access to the many. The dominant platform in the industry is a hub model where lenders and borrowers match availability and needs through an automated process — think machine to machine. This process services the easy to borrow (ETB) segment of the market that generates the majority of the volume and tickets.
There are two new solutions in the market that are building technology with a similar concept. The ‘nirvana state’ for borrowers and lenders is the promise that through this single pipe they will gain access to the whole market, including borrowers, lenders, trading platforms and market utilities like central counterparty clearing houses (CCPs). The challenge to achieving success for pre-trade hubs is whether they can, in a timely manner, deliver open source, state of the art connectivity to the marketplace, including trading and execution venues, with all of the trading features exposed, but used in a way that efficiently executes all transaction flow.
Post-trade providers have been a mainstay in the industry for decades. Geared to back office and operations personnel, they provide a valuable service by ensuring that new trades done manually or via a hub and inter-life cycle changes that are agreed to manually have been inputted correctly into front end applications and booking systems. This process flags exceptions and allows the trading counterparties to reconcile, avoiding costly fail charges. These services require different levels of integration depending on the client’s needs and come with different costs.
The final segment, trading and execution platforms, provide the ability to source liquidity and to dynamically negotiate terms with enhanced tools provided by the platform. ‘At trade’ decision support is becoming a need-to-have, not a nice-to-have, as the number of inputs and requirements into trading decisions continue to grow. This dynamic process is well suited for quick decision making while accessing the broad market across equities and fixed income trading bands, with a focus on specials and hard-to-borrows. Percentages vary by firm, but generally this intrinsically valued segment of the market represents 10 to 20 per cent of the transacted volume, but generates upwards of 90 per cent of the revenue. It is easy to understand the value that proven and sophisticated technology can bring to this important segment of the market. In the space, there are only a few providers out there — including GLMX — that are live in this capacity, and working both sides of the aisle to usher automation and move this tranche of trading on platform.
Processing SBL collateral transactions is multifarious and with many manual and automated options to choose from along the chain.
How are client demand and attitudes towards securities lending changing? And what impact is this having on competition and innovation within the industry?
Clients are demanding more, regulators are requiring more and as a result, technology and service providers are producing more. We are in the midst of an evolution — and maybe even a revolution — in securities lending.
The period of ‘build and they will buy and adopt’ was the norm when technology providers were scarce, solutions that were monolithic to service one part of the SFT market were stretched to serve new needs, and business lines were siloed, causing firms to adopt multiple services that would not connect and communicate with each other.
This question is very timely as firms are in their planning and budgeting phases for 2025 and beyond. As it relates to front end markets, clients are demanding a standardised, comprehensive, multi-product, and multi-asset class platform. Repo, SBL and reinvest and total return swaps (TRSs) achieve the same result, but each come with their own costs, operational processes and liquidity profiles. From our ongoing conversations with clients, common themes are emerging, including one where the industry wants the ability to trade across these products with price transparency and operational ease in a single platform. A technology platform that looks and acts like a trading front end, has a trader or sales-trader ‘brain’, and one that can handle all aspects of trading, from access to deep liquidity pools to better decision support at the point of execution to lifecycle and trade management for multiple product types. As I have seen before, this type of technology can scale their business through electronification of workflows, from high touch into low touch, reduce costly and prohibitive barriers to entry, and benefit from ongoing innovation.
There are many platforms out there but not many with comprehensive access to multiple products, across multiple asset classes, across multiple regions. Fortunately, GLMX is one. In this world view, GLMX and a few other providers compete to provide the industry innovative technology, premium client support and customisation, ease of connectivity and reasonable cost. Collectively, this is the value proposition the industry demands.
Looking forward to the end of 2024 and into 2025, what hopes do you have for the evolving securities lending landscape? What can participants expect next from GLMX?
Given that the SBL industry is at a pivotal time, it is understandable that many are struggling with how to proceed. Some may simply onboard additional providers across the value chain in order to ‘check the redundancy box’, while others may look to models from other markets for alternative solutions to optimise technology access and resiliency.
In many markets, and including our recent experience in the repo market, liquidity centralises around a few trading platforms. There are several reasons for this behaviour, but the ultimate leaders often provide the best value for users, measured by breadth of product, depth of functionality and access to the most diverse ecosystem. Cost is always part of the conversation but it is not the most important factor.
As an industry executive from a market leading SBL firm told me last week: “I am willing to pay for something that works.”
As I laid out earlier, the SBL market has ‘grown up’ with disparate technology solutions across the financing value chain. GLMX has succeeded in being the dominant platform for repo, a sibling market to SBL, by building solutions for each step in the trading process, pre-trade, trading and execution, and trade management workflows, into its core technology offering.
The approach for SBL is exactly the same and through a single application, users can utilise automated matching messaging for easy to borrow and general collateral flow, enhanced trading tools to find and negotiate hard to borrows (HTB), and a trade blotter to initiate recalls, returns, rerates and substitutions on outstanding trades. In addition, the platform supports equity and fixed income securities across all trade types, including cash and non-cash and collateral transformations, and this functionality comes with the attendant benefit of electronic trading, pre and post-trade integration for operational ease and risk mitigation.
In addition to the advanced and centralised workflow technology, GLMX provides access to over 150 (and growing) clients, including banks funding desks and securities lenders, dozens of third-party technology vendors and industry infrastructure providers.
Our clients get the utility of GC trading, the sophistication of specials/HTB trading technology and flexibility to action trade lifecycle events in real-time as well as a viable solution for the industry’s need for technology service optimisation and trading resiliency.
Based on client demand and extensive and ongoing client input, GLMX is rolling out TRS for both equities and fixed income very soon. Capital constraints are driving desks to eliminate inefficiencies across their funding businesses and are increasingly driving convergence of collateral usage and across funding desks.
The ability to source liquidity across repo, SBL and reinvest, and TRS in a single platform with straight through processing on new and existing trades is a game changer and GLMX is heavily leaning on its development process to make this a reality.
I have a fervent appreciation of the transformative ability great technology can provide, and once again, I am backing up my conviction by having joined a firm that can deliver these superpowers to the SBL industry.
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