What’s Next for Securities Finance Technology Vendors?

The dizzying array of new regulation in financial markets is forcing change on all market participants. Securities technology vendors that think through not only today’s challenges but also tomorrow’s are best positioned as key partners for their bank and brokerage clients.

The list of regulations impacting securities financing businesses is exceptional in its diversity and depth of impact on bank and brokerage operations. T2 settlement, the cost of buying in failed transactions, TARGET-2 Securities and CSD-R are direct examples, while nearly every Basel III-related regulation requires critical inputs from securities finance-related systems.

It is generally accepted that technology is the best mechanism for coping with regulation, in particular processes and flows that cannot reasonably be managed by any one person. A requirement for straight-through processing and a focus on transparency means that systems must communicate internally and externally, all the time, every time. Any bilateral or CCP transaction must flow through to follow on systems for billing, reconciliation and comparing contracts. Business, risk, compliance, finance and treasury managers must have access to daily information to facilitate intraday liquidity monitoring and time-specific payment obligations.

Pirum has taken a leading role in securities finance technology to deliver low cost solutions to allow its clients to deal with some of the regulatory and compliance challenges. Faster pre-match and settlement enables firms to minimize fails and avoid costly fines. A same day pre pay traded bilaterally or on a CCP can allow banks and brokers to avoid capital costs for collateralising too early. The only way that RWA or the Leverage Ratio can be calculated is by including accurate, up to the minute data on securities finance positions, exposures and netting opportunities.


How Pirum Helps
Mark Schilling, Global Head of Sales, Pirum
Pirum has developed a range of intelligent, targeted products and services that assist both the front and back office manage the continual barrage of rules and regulations that challenge the industry. These innovative solutions can be implemented with very little tech build, allowing clients to implement rapidly. Pirum’s product line-up and development activities emphasize results that help the industry cope with the present and future regulatory landscape.

Industry Challenge Pirum’s Solutions
CSDR/T+2 Settlements Real Time Returns and Pending Match enables firms to pre-match and settle trades quicker than under previous processes. This has a direct impact on reducing fails and avoiding costly fines imposed by CSDR.
RWA management Pirum’s CCP Gateway enables the pre-matching, novation and the entire post trade life cycle of securities lending trades via a CCP. The risk weighting of a qualified CCP is significantly lower than that of a bilateral counterparty. This mitigates the impact that securities lending has on the RWA of a firm’s balance sheet.
Collateral cost management Real Time Pre Pay manages same day pre pay while avoiding heavy capital costs for one or two day pre pays. This can also create transparency into the collateral pledged and ensure brokers aren’t overcollateralized with triparty agents. This in turn has a direct impact on balance sheet and capital costs as well as limiting unsecured risk. Real Time Pre Pay has applications across bilateral cash, non-cash and tri-party collateral.
EMIR Position Exposure Management shows collateral at the account level. Using automated calculation and reconciliation at the most granular level, firms can optimize the move from Omnibus to client level accounts.
Risk Management Exposure Management and CCP Gateway products both optimize collateral and capital efficiency.
Credit and Liquidity Exposure Management Real Time Exposure Solutions solve for automation and Straight-Through Processing, streamlining manually intensive and time-critical post-trade processes throughout the day. These include:

  • Exposure and triparty – calculate and reconcile all open positions between borrower and lender using current market prices and FX rates including RQV automation.
  • Marks – automate agreement of mark-to-markets between borrower and lender, ensuring trades are correctly collateralised and that fee and rebate accruals are calculated using up-to-date market values.
  • Payments – reconcile non-DVP cash movements on new loans (e.g. pre pays) and returns, highlighting any differences and posting agreed movements back into both parties systems.
  • Returns – automate manual bookings of returns whilst maintaining full control of exceptions. This ensures returns are matched earlier and more likely to settle on time enabling collateral to be returned same day.



Financial technology companies and their clients appreciate that the effective application of technology for managing regulations is a global challenge. Some firms may be starting out applying technology to one region or problem, but the interconnectedness of financial applications means that a global approach will be most effective in the end. Technology that can reach across geographies and speak to multiple accounting, risk, balance sheet management and settlement systems will prove most useful to bank and brokerage clients.

A new conversation for banks and brokers is that securities finance is increasingly one part of a hub-and-spoke model of broader services within the firm. The silo model, where securities finance could once make its own decisions, is increasingly receding in favor of a model where a central pool of product development, finance and technology resources are deployed for the benefit of all business units. This means that securities finance technology may still be applicable to the silo, but it works better, and vendors stand a better chance of success, if their products serve a broader purpose within the organization and the financial markets technology ecosystem. This is driving technology vendors to a common point of servicing all cross-collateral assets. Competition increases due to the overlapping and centralized nature of functionalities, but this also increases the capabilities and sophistication of the vendor community.

This change is encouraging securities finance vendors to take on new roles for not only their technology systems but also their business strategy. Examples include a greater focus on firm-wide needs for straight-through processing and transparency, and more willingness to seek and accept interoperability with firm-wide or industry-wide systems. The days of the closed, proprietary system are coming to an end. The next generation of technology development speaks to a model where resources are shared. Technology firms will thrive by adopting open architectures where their functionalities and support models outshine their competitors.

An ever-present conversation on balance sheet management remains a pressing topic not just for securities finance professionals but also their technology providers. The fact is, if balance sheet allocations shrink then securities finance businesses will shrink to. Technology providers have a logical role to play in this challenge by helping business managers first optimize their available collateral, then report on their effectiveness and P&L generation.

Concurrent to greater centralization in technology, securities finance is finding increasing points of contact with OTC derivatives. Straight-through processing and transparency are being pushed to new limits and new markets, including identifying overlaps and challenges between securities finance and the swaps markets. Vendors that understand these critical points of overlap will be positioned best in the future markets environment.

Securities finance is a critical part of the financial markets environment; it will survive in one or maybe multiple forms. Going forward, successful securities finance technology vendors will be tackling challenges that may be here today but will certainly confront the industry in the future. A mix of securities finance and OTC derivatives transactions and consideration of every step in the life cycle of a trade that can be automated make technology a central decision for every bank and brokerage.

This article was commissioned by Pirum.

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