Ahead of our Finadium Investors in Securities Lending (FISL) conference taking place on May 14-15 in New York, we talk to our panelist experts from Fidelity and Provable Markets about the landscape for beneficial owners in an environment of shifting options.
The agent lending and borrowing communities are grappling with volumes and volatility at all-time highs, as well as a variety of both expected and surprising challenges: a sharp decline in specials, the shift to T+1; and vendor outages, as just a few examples, said Justin Aldridge, senior vice president and head of Agency Lending at Fidelity Agency Lending, who will be speaking on the Present and future of agency securities lending: Agent lender leaders panel.
The market is showing resilience, but the number of “meaningful providers” in the agent lending space is declining on the back of consolidation, giving beneficial owner clients fewer options in the market at a time when a wider set of choices are gaining steam, such as trade structures to mitigate capital constraints — CCPs, agency prime, peer to peer, and asset segregation and pledge, for example, Aldridge explained.
He highlighted the latter as the most cost effective for borrowers, as well as beneficial to high risk-weighted counterparties, notably, ’40 Act funds: “We’re at the very beginning of (the asset segregation and pledge model) starting to bear fruit…Borrowers are gaining the benefit of the capital which is allowing them to do more business with the beneficial owners who can do the trade.”
Optionality is also showing up as part of client demand for customization, with bespoke rules and programs, he added: “Every client wants to interact differently, they don’t want the same program parameters…and that can be a level of differentiation where they can outperform…But not manually, doing it in a technological way that’s systematic and automated.”
Tech…simplified
Adapting technology can come with infrastructure challenges and baggage. And while many legacy systems are crucial for operations, addressing elements such as standardization, connectivity and data access does not have to be as complicated if taken in stride, said Rachel Andreassian, head of Product and Market Structure at Provable Markets, who will be speaking on the Technology as a key business driver for everyone in the securities finance value chain panel.
“With modern technology, the ability to adapt and be flexible can be easier to navigate than challenges faced with older infrastructure,” she said. “By chipping away at a specific workflow, leveraging various perspectives in the industry, and working together on solutions…there will be progress.”
One of those areas is access to data, for which cloud technologies have for years been part of a go-to strategy, and Andreassian noted that firms have “started to leverage those ecosystems for data storage to have easier access to scale their data.”
“What I’m noticing is a lot of folks wanting consolidated access to granular data. That probably comes from growing expertise on the individual trading desks towards navigating it,” she said.
Still, even when those metrics are exposed, market participants don’t often have the capacity to drill in on specific scenarios to make that raw data actionable. Meanwhile, some fear a proliferation of execution venues is fragmenting datasets, which makes understanding any resulting metrics difficult across liquidity, or a variety of performance factors.
Venues can add value by normalizing consistent workflows, exposing actionable data and improving transparency into the market. She also noted that: “The underlying technical protocol doesn’t matter as much as the timeliness, accuracy, and ability to speak the same language amongst different market participants.”
Justin and Rachel will be joining colleagues from eSecLending, Fidelity Agency Lending, GLMX, J.P. Morgan, RBC Capital Markets and S&P Global Market Intelligence at FISL, which takes place in New York from May 14 to 15. It is our 9th annual conference bringing together a broad cross-section of the industry to share expert insights on the latest and most important developments in securities lending. Registration is free for qualified buy-side firms including asset owners, asset managers, insurance firms and hedge funds.