The FIS Securities Lending Processing Platform, better known by its original name of Loanet, is installed across the majority of US broker-dealers and banks operating in securities lending. In an age of rapid digitization, FIS is beginning the transition from Loanet to Loanext with an opportunity to create a new era of business and technology flexibility for both US and international market participants.
Loanet got its start in the 1980s and was designed from the outset to improve the efficiency of the accounting and settlement process for securities finance transactions. Over the years it has evolved technologically and functionally into a whole of family of applications. The Loanet business was acquired by SunGard in 2001, in a deal that at the time gave SunGard an estimated 50% of the global securities finance systems market. Following FIS’s acquisition of SunGard, Loanet has continued as the most popular securities finance accounting platform among US market participants. Even firms that have rebuilt their entire front ends still tend to use Loanet in the background somewhere.
The importance of what happens to Loanet now lies in its ubiquity: in a 2021 canvassing of securities finance trading firms, Finadium found that the majority of the market was using Loanet or a closely related FIS product. Loanet technology that prevents interoperability can constrain the market while an upgrade that allows for customization and connectivity can help it grow.
FIS recognizes that Loanet was built for a different time and is preparing a major new release: Loanext. This will modernize the legacy technology of Loanet and allow users a more flexible integration experience with other platforms. As one example, users will no longer be bound by the seven fields of information that Loanet supports, but rather will have access to a more diverse and digitally appropriate span of information exchange. As a range of collateral-related technologies are coming together in the front and back office, Loanext can enable connectivity through new parts of the securities financing marketplace.
The silo breakdown
The Loanext upgrade will provide a single platform for global business operations across securities lending, repo and cross-product collateral management. Nancy Steiker, senior director of product management for FIS securities finance and collateral, said that “we see our clients increasingly looking across diverse financing activities as one pool of business. Loanext supports this thinking and provides the accounting services to deliver on execution.”
The convergence of securities lending and repo technology on the trading desk has been happening at different places and different times, depending on the firm and the market segment. Whatever the pace, the more that core back-office technologies view any trade type as eligible for inclusion in their processing, the easier the progression to convergence and the standardization that happens alongside it. A breakdown in siloes reaches across the types of firms engaged in the transaction: dealers, banks, asset managers and hedge funds face a similar set of challenges in securities finance; it makes sense that products in this space should be built for the entire market at once. This remains a time of transition however, which means that trading and accounting solutions must respond to client business needs.
Loanet has long been a silo player in securities finance. Loanext aims to be different, which includes rationalizing the securities finance and collateral architecture to reduce the number of technology components needed to support the front to back value chain of a securities finance transaction. A simplification in the number of moving parts and discrete technology components should help reduce both complexity and challenges to integration across FIS and other market platforms. This may also result in platform and vendor consolidation: fewer technologies are necessary when one system can manage multiple product activities.
Cross-product, cross platform
The ability to integrate Loanext across multiple trading platforms is a key objective of what FIS aims to deliver. There are now seven competitors to EquiLend, including FIS’s recently launched ATOM MTF, and market participants need to show their risk managers and regulators that they are prepared for new eventualities. In a recent Finadium survey, 69% of users of securities finance systems said that having redundancy for electronic securities finance trading was a primary objective. David Lewis, product owner of ATOM, said that “Loanext will arrive pre-integrated with the ATOM MTF, delivering redundancy and a new liquidity option for securities finance market participants.”
Loanext is being designed from the outset to store and maintain one single copy of any given trade between two parties and features open APIs that give end users greater flexibility about how to interact with the platform, including using their own tools. The platform will process events in real-time and hence minimize the need for and use of batch processes. This will have the twin benefits of creating a system that is both more robust and timely.
The new Loanext takes a different approach, recognizing that multiple connectivity points are a requirement for a modern securities finance, repo or collateral desk. This includes bilateral and central counterparty (CCP) settlement venues, and a range of other technology and execution platforms. Integrating with a more diverse set of counterparties requires a mix of customization to match individual protocols and standardization where possible, whether that means the Common Domain Model, a version of FIX, smart contracts on a distributed ledger technology (DLT) platform or something else. FIS says that Loanext will be ready for this type of market connectivity on day one. Igor Salzgeber, head of FIS’ securities finance and collateral product group, noted that “for any firm considering expanding its range of securities finance execution platform options, a more flexible and integrated Loanet with greater resiliency is a necessary starting point.”
It’s not broken. Should it be fixed?
A Loanet that combines books and records technology with real-time trading tools and cross-product collateral management and optimization in the form of Loanext opens up new opportunities for market participants. As Basel III Endgames expand around the world and interest rates are beginning to moderate after a fast rise in 2023, market participants need opportunities to drive further efficiencies within their organizations. Holding on to legacy technology to maintain the status quo, even if there’s nothing inherently wrong with it, is unlikely to be a successful strategy.
Loanet works as advertised, and there are good reasons why market participants have kept it live for so many years. At the same time, capital markets are trying to unwind legacy architecture across every firm: in a 2024 survey of 300 CEOs, a Deloitte study found that 82% of firms failed to meet their cost cutting targets, and that “legacy technology and rigid operating cost structures were at the core of failure rates.” This is a struggle for every industry; capital markets are no exception.
A new era of product development, business and regulatory change means that Loanet must evolve with the times. The transition to Loanext is meant to help market participants be more flexible and consolidate their technology architectures without having to engage in a major migration to another vendor product. As users take advantage of the new open connectivity that Loanext offers, this can translate into more nimble decision making for technology and business users across the industry.
This article was sponsored by FIS.