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?
There is an old saying in Capital Markets: “revenue comes from trading but profits come from operations.” Securities lending is a business process that exemplifies this truism. Firms are making major changes in reaction to regulatory and market realities and have to maintain profitability at the same time. As part of this evolution, securities lending operations and technology are becoming part of the integrated enterprise-wide service offering of major financial services firms. Along the way, firms are struggling to balance the needs of operational efficiency, compliance and cost management.
As banks, brokers and beneficial owners begin to get serious about signing on to Eurex Clearing’s Lending CCP, we evaluate what’s required to go live. We spoke with early participants and evaluated Eurex Clearing and Pirum documents on the boarding and integration phase, IT, legal and risk requirements.
The securities finance industry is currently digesting the heavy meal that has been Basel III, CRD-IV, Dodd-Frank and related regional regulatory initiatives impacting the global market. These are not light appetizers at all. Rather, financial intermediaries are facing tough questions about how they will move forward in their business models. This article looks at the three main options facing market participants in their business decision making, some negative and some positive, and offers SunGard findings on market trends.
We’ve been watching trueEX for a while, and a recent hire of a former securities lending professional sealed the deal: this start up could potentially teach securities finance a lesson or two, or even three. Here’s what we’re seeing:
For years, we’ve been hearing that equity collateral in broker-to-broker securities lending is a coming new standard…. Any day now…. We’re moving in that direction…. The advantages are so obvious it has to happen…. We can’t afford for it not to happen….
Last week the post-trades processing vendor SmartStream purchased Algorithmics’ collateral assets from IBM. While IBM’s sale was perhaps not unexpected, the buyer was a surprise. Our first question was, what is SmartStream’s plan here? We had a chance to speak with SmartStream’s CEO and Head of Product Strategy to find out.
Between Sapient’s recent survey and the Clearstream Global Securities Finance Summit in Luxembourg, we’ve been hearing a lot lately about the idea of collateral management and clearing utilities. It seems that market actors are gearing themselves up to create self-managed utilities not unlike EquiLend, member-owned clearinghouses or other services that financial institutions own for their mutual benefit. But is this really happening and is it the right time?
Articles and reports on collateral management tend to focus on the high-level application of technology and the money to be made (or not lost) from collateral optimization. Under the hood, the reality is that collateral management for complex organizations relies heavily on technology infrastructure. This is much more than a graphic user interface at the client site; this technology extends deep into the back-end of financial markets and has a global reach. I want to share some insights we’ve gained by working with hundreds of financial institutions in this area; specifically, about straight-through processing and the technology that makes collateral management systems scalable, flexible and easy to use throughout the organization.
We’ve seen not one but three announcements or promotions of real-time collateral and liquidity analytics and valuations services this week, and its still just Wednesday. These services are an important step forward for a market that needs to know the value of its holdings, collateral and liquidity in real time. However, there is a big problem that remains unresolved.
The collateral management infrastructure market is evolving at a rapid pace, with new ideas emerging on a regular basis for how banks, insurance companies and fund managers can solve some of the most complex challenges in today’s financial markets through effective technology use. A “best case” scenario for using collateral infrastructure that shares “mutualized” technology and applications across the industry is now coming into view. This article explains that best case, and why industry utilities and shared services are the path forward for market practitioners.
A new survey from SunGard and the Professional Risk Managers’ International Association, and conducted by NewOak, shows risk managers getting smarter about what they want from a collateral management technology platform. If risk managers have anything to say about it, the focus ought to be aggregating all collateral into one spot.
This article previews an upcoming Finadium research survey on insurance companies, fund managers and the process of collateral management. In particular, we look at manager thinking on collateral efficiency and portfolio strategy, non-cash vs. cash and the value of trading collateral.
The emerging collateral environment places new requirements on banks, insurance companies and others to not only manage collateral internally, but also connect efficiently with external infrastructures. This is becoming a core question of business strategy as there are potentially meaningful cost consequences to these decisions. Finadium’s recent research report on tri-party repo and collateral agents looked at how those agents conduct their business; the reverse question is what best practices are necessary for market participants in collateralized transactions when interfacing with tri-party agents, CCPs and Central Securities Depositories.
An important question on the horizon is the use of cash in collateral management. Financial market participants have experienced a relatively relaxed cash environment over the last few years. Cash has been inexpensive; interest rates have remained low enough that placing cash as collateral to a bilateral counterparty or to meet obligations at a CCP has meant that few opportunities were missed elsewhere.
In producing our new research report on emerging market technologies in securities finance, we were reminded of a 1997 book by Harvard professor Clayton Christensen, “The Innovator’s Dilemma.” There are direct lessons from this book to today’s securities finance and collateral management services and technology environment.
A new Finadium research report profiles twelve vendors with new or evolved technologies in securities finance and collateral management, with lessons for what could make these firms successful over the next year or two.
We have heard it a number of times now: collateral management technology vendors and financial institution buyers asking whether it is best to have a front to back solution that captures trading, collateral, risk, pre- and post-trade analytics, and operations, or whether it is better to invest in or build best-of-breed solutions. We have come down to an opinion on this topic that we are ready to present.
Finadium recently completed an analysis of emerging technologies and services in securities finance and collateral management. The results will be published in an upcoming research report (note: this is a separate report from our recently released analysis of large collateral management technology vendors). In the meanwhile, below are some common themes we see in the emerging vendor space.
Finadium’s latest research report is a review of vendors and major considerations for large financial institutions looking to purchase collateral management technology solutions. We review seven vendors and provide recommendations for evaluating sticker prices and ultimately selecting a vendor.
Below is the introductory presentation made at yesterday’s Finadium 2014 Conference, “Innovating for the Basel III and Dodd-Frank World.”
An article in Institutional Investor dated February 10, 2014 “Outsourcing Collateral Management Can Be a Mixed Blessing,” by David Turner was interesting. It got us thinking….
An article in www.hereisthecity.com made us laugh. It was called “The 15 banking jobs that will be the most secure over the next 7 years”.