Obituary for SecFinex

Securities Lending Times reported today that SecFinex, the NYSE-Euronext operator of a securities lending exchange, will close its doors this Friday. The closure marks the end of a struggle for the exchange operator to gain traction.

SecFinex was launched in 2000 and was on its third business model by 2011 with a focus on central counterparties. This followed the 51% ownership stake taken by NYSE Euronext in 2007 (Société Générale and Fortis remained minority partners). In 2008, SecFinex announced relationships with SIS x-clear and LCH.Clearnet for launching two separate CCPs in Q2 2009 across a large number of European countries. In January 2009 it partnered with EuroCCP for creating a CCP in the UK. Ultimately the CCPs did not launch until 2010.

SecFinex offered three electronic platforms, a bid/offer market, an auction market and a negotiated market, though none had a built-in source of liquidity to drive growth. Both SecFinex and Finadium estimated that in 2009, less than 1% of European volume is transacted in SecFinex’s bid/offer market and less than 5% in their private market. This number does not appear to have grown through 2011.

The greatest criticism of SecFinex was that they were trying to do an extensive amount of work with multiple large parties at the same time. Getting the operations right with one counterparty takes work; doing the same thing with three counterparties at once is a massive juggling effort. The launch timelines presented by SecFinex and its partners proved optimistic. In the end, they came close to building it but the clients didn’t come.

According to Securities Lending Times:

“Shareholders, including NYSE Euronext, have reviewed their strategic investment in SecFinex and have determined that providing further financial support for the company in this climate is no longer appropriate,” [Lee Hodgkinson, head of European sales and relationship management at NYSE Euronext] said, adding that CCP clearing for securities lending transactions is unlikely to be a high priority for major banks until there is an explicit regulatory push and Basel III starts to impact capital requirements.

Interestingly, SecFinex’s closure comes as exchanges around the world are looking at entering the securities lending market. Perhaps the timing was right and the model was wrong, or vice-versa.

The Securities Lending Times article announcing the closure of SecFinex is here.
Finadium’s 2009 report on securities lending exchanges is here.
The soon-to-be-fading SecFinex website is here.

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