Finadium
September 2020

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This report delivers a core review of some of the most important trends facing the securities finance industry for a scenario analysis of potential outcomes.

COVID-19 has accelerated multiple changes in capital markets including an increased reliance on automation, working from home and the need for close cooperation between organizations and vendors to achieve individual and industry goals. For securities finance, an additional set of changes are taking place that will impact the business decisions of every participant in the value chain.

Securities finance delivers important benefits to capital markets as a central part of the capital markets ecosystem. However, beneficial owner lending has seen lower revenues than it might otherwise due to strong headwinds: years of competition from derivatives; soaring equity values; and the loss of agent lenders’ market share in favor of broker-dealer internalization. Dealers have seen their securities finance activities grow at a small rate, well outpaced by Total Return Swaps. This has not exactly been a lucrative time for securities finance.

As long-planned regulation is enacted, the natural progress of asset aggregation continues for clients on all sides of the transaction. The challenge for securities finance is to sort through the obstacles and opportunities, and present a forward-looking plan for success.

This report should be useful for a broad cross-section of market participants including beneficial owners, hedge fund borrowers, agent lenders, broker dealers, technology firms and regulators.

Table of Contents

  • Executive Summary
  • No Way Back, Only Forward
  • How Many Borrowers and Lenders?
    • – How Many Service Providers?
  • Basel IV and Balance Sheet
    • – Internalization and Derivatives
  • It’s a Corporate Governance World
    • – SRD II
  • Best Execution Measurement
    • – The Client Side of Performance Measurement
    • – Is a Single Ticker Good or Bad for the Market?
  • CCPs and DLT in the Future State
  • About the Author
  • About Finadium LLC
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