It started as a low murmur of vague unease and confusion, and soon erupted into a 36 month panic. In 2003, the Securities and Exchange Commission (SEC) served notice to the US securities lending industry that they had been doing it all wrong for the last twenty or thirty years – and they had a very short time to fix it. European regulators followed suit in 2008 with a mandate for action by 2010. Agent Lender Disclosure (ALD) had hit the market with lessons for managing today’s regulatory change.
Counterparty exposure has become an important topic for banks in the securities finance industry. What was once a fairly low-credit exposure activity, where the biggest concern was hitting a credit limit established by a central credit committee, has become a requirement for banks to hold capital against a wide range of transactions. Doing business with the right counterparty is no longer a question of good relations or the term of the trade. Banks must also factor in the internal cost that arises from counterparty exposure.
A major speech and congressional testimony were released by the Federal Reserve on two important topics for Securities Finance Monitor readers: fixed income liquidity and blockchain for clearing and settlement. This article reviews what was said and identifies some takeaways for market participants.
Funds Transfer Pricing (FTP) is emerging as not just a nice to have, helpful tool in managing a financial services business, but in some cases has become a regulatory necessity. FTP, also called Collateral Transfer Pricing in some firms, is the exercise of allocating the cost of liquidity between business units at the same firm. It is no longer enough to have a friendly handshake about cost allocation, especially when one desk is providing liquidity and another is a high-octane consumer.
Financial markets are paying attention to capital and balance sheet as a top priority: this fact is driving trading decisions and redefining decades-old relationships. Banks and other regulated institutions are looking closely at each aspect of capital costs and are finding some unusual conclusions, especially in what used to be the quieter collateral operations corners of their enterprises.
Last week, we dived into the FRTB and what it will mean for capital cost increases. But market risk heads and vendors are also getting prepared for what the trading book regulation will mean for IT systems, and every indication is that there is some substantial work ahead.
As part of Finadium’s recent survey on securities finance technology we devoted a significant portion of the report to firms’ attitudes towards vendors. The survey revealed some important directions for both banks and brokers, and their technology vendors, especially as the sell-side moves increasingly towards the enterprise model in securities finance operations and technology.
The FRTB has hit the financial industry like a tonne of bricks, and any regulated entity with a trading book is affected. To what extent is still being figured out, but one thing is certain: capital requirements are going to go up. This article looks at the available specifics to date on how much that will cost.
The Finadium 2016 Conference closed with a great panel discussion on the subject of blockchain networks in financial services. The panel featured representatives from leading players: Digital Asset Holdings, itBit and TØ.com (Overstock.com) – all of whom have, or imminently will have, real-life and real-money blockchain trading platforms. Several important topics were covered in a wide ranging conversation.
We are pleased to report on a very successful Finadium annual conference yesterday in New York. With no transit strikes or bad weather in the way, nearly every one of our 120 registrants attended. The panels moved quickly and we ran out of time for several of them, showing how much information market participants would still like on a variety of topics. Here are our main takeaways and a copy of our presentation slides.
In our recent survey of banks on securities finance technology we found that mid-tier banks are facing some particular challenges not shared by their large or small competitors. There are clear indications that mid-sized firms have some very different strategic and technology priorities than either smaller or larger firms – in some cases, dramatically different.
We are very pleased to report that our annual conference in NYC is right on track for a successful event. With 119 registered delegates and 18 speakers, we expect this to be a dynamic and engaging day. We present below the agenda as it stands.
When overhauling collateral management systems, choosing vendors requires its very own optimization strategy, said speakers and panelists at a recent London meeting. Internal infrastructure, tri-party agents and third party service providers are all part of the mix.
Finadium has conducted a survey of banking professionals to understand the priorities of firms in securities finance technology and strategy. Our report measures how much progress has been achieved by banks in moving towards an optimal securities finance strategy and the challenges that remain.
As we contemplate a system in which securities transactions settle on an accelerated basis through blockchain networks, we must also consider the end of “cash” and “credit” as distinct forms of funding. This is the end game imagined by Bitcoin, and the ultimate vision of a financial system based on blockchain.
As a wave of new technologies crashes into traditional business models, banks are asking what needs to be done now and how relevant is it to the business. On the topic of blockchain, or distributed ledger systems, it’s a question of when, not if, said panelists at the Association for Financial Markets in Europe’s (AFME) annual European liquidity conference.
There has been a LOT of noise about blockchain and settlements in the last week – the decibel level is approaching 10 on the hype-o-meter. This article reviews commentary and white papers from some big players with big things to say. We’ll also be hashing this out in person at the Finadium 2016 Conference on March 15 in NYC.
Recently, TheStreet.com published its top ten list of Robo Advisors and some of the statistics quoted were pretty interesting (see Exhibit 1). Robo Advisor services are heavily targeted towards the retirement investor, marketing the exciting opportunity and power of algorithmic trading to the realm of retirement savings. There are direct impacts to watch out for in securities finance however, and the bigger Robo Advisors get, the more this matters.
Central Securities Depositories (CSDs) are balancing their traditional guardian roles with competitive market dynamics – including a new deal with buy side firms, maintaining friendly relations with custodians, and preparing for T2S. We spoke with Clearstream subject matter experts on how those dynamics are evolving.
The financing markets are changing, and with that change comes the need for some form of systems overhaul. The big issue going forward, said panelists representing the securities lending market at the GSF Summit in Luxembourg, will be prioritizing resources to get things done. We spoke with Jonathan Cooper, Director of North American Sales at 4Sight Financial Software, about what he sees as the greatest challenges and opportunities in 2016.
The Depository Trust and Clearing Corp (DTCC) has taken a major step in positioning itself as a leader in the growth of blockchain. Following its investment in Digital Asset Holdings along with a group of investment banks, DTCC also issued a white paper on its views on blockchain’s evolution. In the US market, DTCC’s thoughts and plans are a center point for industry participants’ long term strategy, which makes what they have to say very important.
Securities Finance Monitor Magazine Edition 3, our Technology Special, is now online. Hard copies were distributed at Clearstream GSF and IMN’s US Beneficial Owner Conference. Download your free copy here. We welcome your feedback.
The impact of regulations on the securities lending industry has been frequent and profound, but the market remains vibrant. Volumes decreased in 2015 for the first time since the Global Financial Crisis although they remain near post-2008 highs. Growth in two key areas demonstrate the market’s adaptability: transactions backed by non-cash collateral have increased steadily since 2008 and direct lending is slowly growing between borrowers and lenders without an intermediary bank. With more regulations coming online in the near future, including the Financial Stability Board’s new margin rules, firms are well-placed to scrutinize available strategies in a bid to optimize returns.
EquiLend’s NGT (Next Generation Trading) platform is emerging as an important new trading platform in the securities finance markets. With NGT at the early stages of adoption, Finadium conducted interviews with EquiLend and initial users to understand the value of the platform and determine what benefits may emerge as the network grows.
Buy-side innovation in collateral management continues to be driven by firms’ needs to align with the business, control costs and provide transparency. In an interview with Securities Finance Monitor, Grigorios Papamanousakis, quant strategist at UK-based Aberdeen Asset Management, explains why managing the complexity that comes along with those needs means blockchain and cloud computing are going to be hot tech topics this year.
Finadium has produced a business plan template for institutions wanting to create their own Capital Cost Calculator. This is a new idea in financial markets that gives traders, treasury groups and end-user clients the ability to project capital charges based on a range of internal and external factors, including a bank’s real time liquidity position.
Finadium’s 10th annual conference will be held on March 15, 2016 in New York City. This program features leading participants in the securities finance and collateral management markets and is sponsored entirely by Finadium, the independent research and consulting firm.
Fully Paid Lending (FPL) programs touch nearly every major trading, operational, compliance and administrative business process at a broker. Putting an FPL program in place does as much as any other project to expose just how “enterprise ready” (or not) a broker’s securities lending systems and operational model really are.
Its been a busy end of the year with corporate announcements and thought leadership coming out at a fast pace. Here’s a collection of articles we found important but haven’t had time to comment on extensively.
Big Data has taken over retailers, governments and social media, and it is now coming to securities finance. Securities finance has always had to contend with a substantial amount of data, but Big Data presents a new and emerging complication. The change ahead of us is how much more data is created, how much further data needs to travel, and what else needs to done with it. This is where Big Data really earns its name.
Data protectors in custody and settlement need to be alert to a major shift in cyber-attack trends. It seems that the threat has moved beyond data loss to increasingly include data corruption. In a recent DTCC survey, a majority of risk managers said that cyber threats will be the cause of a high impact event to the global financial system. Some 70% cite it as a top five risk, though in the US, it’s slightly higher at 77%.
Finadium clients can access the recorded webinar and PDFed presentation from our December 8, 2015 client webinar on blockchain and collateral management technology.
Finadium has conducted an industry-wide survey of firms offering services in collateral management for securities and investments. This survey provides readers with a service summary, target clients and level of client interaction, product coverage, market differentiators, new functionalities added in the last year and additional service considerations. On an industry-wide basis, we analyze the important new features that firms are adding, their build vs. buy strategies in technology, product differentiation and what problems their clients are trying to solve.
Collateral management is changing rapidly to meet the demands of the new post-crisis environment. It can be difficult for firms to know where to start when defining a target operating model that clearly identifies the changes required to systems and processes.
We recently completed a survey of collateral management technology providers and will soon publish a similar survey of collateral management service providers. Something that struck us was the points of competition and differentiation between the two groups. Here’s what we are seeing.
Finadium has released a new Executive Briefing report on balance sheet optimization strategies for hedge funds. Hedge funds and other alternative asset managers have been hearing about balance sheet optimization, also called self-funding or becoming an efficient counterparty, with some frequency. What does this mean exactly however, and what should hedge funds and other alternative asset managers do to execute a practical plan? This report details multiple strategies to assist alternative asset managers with making the transition towards self-funding their own portfolios.
Finadium will hold a webinar for research clients on Tuesday, December 8 at 10AM New York / 15h London / 16h European time. This webinar will present the fast evolution and future possibilities of blockchain for the collateralized trading markets including OTC derivatives, repo and securities lending. We will also present findings from our recent research report on collateral management technology vendors.
Finadium has conducted an industry-wide survey of vendors promoting software solutions in collateral management for securities and investments. This survey provides readers with a product summary, product coverage, market differentiators, new functionalities added in the last year and technology and implementation considerations. On an industry-wide basis, we analyze the important new features that vendors are adding, what problems their clients are trying to solve and who vendors see as their competition.
Our recent research projects on asset managers and the uses of collateral management (published) and survey of collateral management technology vendors (forthcoming) have shown us that the next advance in collateral management technology is around the corner. It won’t be blockchain although that’s interesting too. Here’s what we are seeing.
Following publication of our September 2015 research report, “Can the Blockchain Work for Securities Finance, OTC Derivatives and Other Collateralized Transactions?“, we have continued to track vendor activities in this space. This article offers an update on four blockchain vendor moves and press releases that have occurred in the last two weeks with a focus on the securities and investments space.
Finadium has released a new research report, “Asset Managers and the Uses of Collateral in OTC Derivatives, Securities Lending and Repo: A Finadium Survey.” This report looks at the progress made by fund managers and insurance companies in preparing for a future landscape where collateral may be in short supply, and cross-asset collateral management is a requirement.
We’ve had several discussions over the last two weeks about collateral optimization and its role in the market. One result of these conversations is that maybe collateral optimization is largely achievable and is now a poor end-goal for financial institutions, and that something bigger is now on the horizon. In this post we present our view of how a new focus on collateral could change markets for the better.
It seems that the era of mergers between physical and synthetic finance businesses is finally upon us. While client preferences may lean towards one type of trade vs. another, there is no question that regulation is the major driver of change. When faced with a request for a securities loan vs. a total return swap, the swap may be both easier and less capital intensive. In the long-term this will create broad-based new dynamics in financial markets. But in the short-term, our clients are working to manage complex implementation and technology changes.
Finadium has released a new research report on blockchain, a potentially exciting new technology in financial markets. Blockchain promises to be revolutionary, disruptive and a way to fundamentally change financial services. While proponents may be correct about the technologyʼs potential, the buzz can be confusing; how much of the publicity is hype versus reality for collateralized trading markets including securities finance and OTC derivatives? We offer a practical look at how blockchain could be implemented across complex capital market activities including liquidity and capital management.
The dizzying array of new regulation in financial markets is forcing change on all market participants. Securities technology vendors that think through not only today’s challenges but also tomorrow’s are best positioned as key partners for their bank and brokerage clients.
Collateral Management is changing rapidly; working out how to respond can be challenging. 4sight would like to invite you to a complimentary webinar on how to benchmark your current collateral systems and processes against best practice.
This is no slight on utilities – they are a very good idea to share industry resources with a pay as you go model. Rather, this article looks at the nature of utilities as the silos of securities finance and OTC derivatives get overshadowed by corporate entities with shared services (the Enterprise Cloud model). We start with our article in Securities Finance Monitor Magazine from June 2015 and add some new perspectives.
Moody’s announced last week that it will be working to create ratings for CCPs. Thomas Murray has a CCP rating program as well. We’ve seen some of these methodologies and have to ask, what’s the risk that really needs evaluating? It would be great for centralized services to outsource this work for individual market participants, but with the information available, what purpose does this serve?