Finadium Research Report

Unlocking the Supply of Fully Paid Assets in Securities Lending

February 2010

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Custodians of fully paid retail assets continue to invest in the fully paid lending business; they recognize that access to internal supply is a key selling point for their securities finance and prime brokerage operations. They are improving client facing technology, expanding collateral types and augmenting reporting. Some also see a link between retail and hedge fund lending programs and are working to develop overlapping technology and operations. The goal of these firms is to position themselves well for an expected increase in borrowing demand going into 2010 and 2011.

Fully paid securities lending programs continue to face a series of challenges including scalability and regulatory scrutiny. There are also concerns about the business risk inherent in dealing with smaller investors that have not been involved in the securities lending market. That said, the fully paid segment has carved out a profitable niche for its providers and will continue to serve an increasing number of retail account holders. The key to greater success will be the ability of brokers to unlock their latent supply.

This report has been written for brokerage firms, their technology vendors and service providers to understand the competitive and operational dynamics of the fully paid lending market. Prime brokers and agency securities lenders will also benefit from understanding market sizing and revenue opportunities in the fully paid space.
The following eleven firms are reviewed in this report:

• Fidelity
• Morgan Stanley Smith Barney
• Bank of America Merrill Lynch
• Charles Schwab
• Wells Fargo
• TD Ameritrade
• Raymond James
• Pershing
• E*Trade
• Scottrade

This report is 26 pages with 13 exhibits.

■ Executive Summary

■ The Brokerage Segment in Securities Lending:
A Continuing Opportunity
– Methodology

■ Sizing the Fully Paid Securities Lending Market
– Fully Paid Retail Assets
– Holdings of the Major US Brokers
– “Fully Paid” Hedge Fund Assets

■ The Investor Perspective
– Compensation for Retail Investors

■ Regulatory and Operational Frameworks
– The Mechanics of Accessing Securities
– The Client Interface

■ Keys to Future Program Development: Scalability and Transparency
– The Revenue Opportunity for Brokerage Firms

■ About the Author

■ About Finadium


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