The primary source of global securities finance news and analysis Issue 232 23 July 2019

Sunil Daswani
Reflecting on Pride Month, Daswani
explains why workplaces should be
inclusive of all people

An insight on Asia | Interview with industry legend Carol Kemm | An update on the UK market | FIS data analysis

IS YOUR SFTR SOLUTION

MISSING A PIECE OF THE PUZZLE?
Discover a partnership for success
on your terms

WELLS FARGO
PRIME SERVICES
PRIME BROKERAGE, MARGIN FINANCE,
AND SECURITIES LENDING
CUSTODY AND CLEARING SERVICES
CAPITAL INTRODUCTION
BUSINESS CONSULTING

Achieving success is easier when you have a relationship with someone who
understands your unique needs. Our Prime Services group has the industry expertise
to help alternative asset managers take advantage of a rapidly evolving marketplace.
In addition, we offer financial, operational, and technical resources to help you succeed,
today and over time.
Discover how a powerful relationship can help you achieve success. Visit
wellsfargo.com/prime.

Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but
not limited to Wells Fargo Securities, LLC, a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, and
Wells Fargo Bank, N.A. Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC are distinct entities from affiliated banks and thrifts.
© 2018 Wells Fargo Securities, LLC. All rights reserved. IHA-5362801
 Lead News Story

Deutsche Bank to undergo radical transformations

Deutsche Bank will exit its equities sales and The bank will significantly downsize its With this transformation plan, the bank said
trading business, while retaining a focused investment bank and aims to cut total costs by they aim to reduce its cost-income ratio to 70
equity capital markets operation, as part of a a quarter by 2022. percent in 2022.
radical transformation.
Additionally, the bank plans to resize its fixed Christian Sewing, CEO of Deutsche Bank,
In this context, Deutsche Bank has entered income operations in particular its rates commented: “In refocusing the bank around
into a preliminary agreement with BNP Paribas business and will accelerate the wind-down of our clients, we are returning to our roots and
to provide continuity of service to its prime its existing non-strategic portfolio. to what once made us one of the leading
finance and electronic equities clients. banks in the world.”
In aggregate, Deutsche Bank will reduce
According to Deutsche Bank, this is with a risk-weighted assets currently allocated “We remain committed to our global network
view to transfer technology and staff to BNP to these businesses by approximately and will help companies to grow and provide
Paribas in due course. 40 percent. private and institutional clients with the best
solutions and advice for their respective
Deutsche Bank is radically transforming its Further highlights from the strategy include a needs—in Germany, Europe and around the
business model to become more profitable, workforce reduction of approximately 18,000 globe. We are determined to generate long-
improve shareholder returns and drive long- full-time equivalent employees to around term, sustainable returns for shareholders and
term growth. 74,000 employees by 2022. restore the reputation of Deutsche Bank.”

www.securitieslendingtimes.com 3
Inside SLT

Malik’s Memo LGBTQ+ Pride

Seb Malik of Market FinReg discusses a Sunil Daswani explains why workplaces
selection of key points from ESMA’s SFTR should be inclusive of all people, no matter
open hearing. their differences
page 12 page 14

Publisher: Justin Lawson

justinlawson@securitieslendingtimes.com
+44 (0) 208 075 0929

Editor: Becky Butcher Asia Insight UK Update

beckybutcher@blackknightmedialtd.com Mark Snowdon, head of capital markets, The UK’s securities lending industry is
+44 (0) 208 075 0927 Asia Pacific at Northern Trust, discusses currently seeing growth and preparing for the
the importance of securities lending in Asia next wave of regulation
Reporter: Maddie Saghir page 18 page 21
maddiesaghir@blackknightmedialtd.com
+44 (0) 208 075 0925

Reporter: Jenna Lomax

jennalomax@blackknightmedialtd.com
+44 (0) 208 075 0924

Contributors: Rebecca Delaney, Barney Dixon

Creative Director: Steven Lafferty

Office Manager: Chelsea Bowles Industry Timeline Data Analysis

+44 (0) 208 075 0930 Industry legend Carol Kemm discusses David Lewis of FIS discusses the recent
highlights from her career in securities decline in the securities finance industry’s
Published by Black Knight Media Ltd lending and how the industry has changed global revenues
Copyright © 2019 All rights reserved page 24 page 26

Your Specialists in Securities Finance

securitiesfinance@comyno.com

4 Securities Lending Times

 Securities lending can be an
important source of return and
Get the Most a key part of overall portfolio
and risk management strategies.

From Your We offer individualized service,

technology and a commitment

Lending to transparency to help you

achieve your goals.

Program

For informational purposes only. Securities lending services

are provided through State Street Global Markets, the marketing
name and a registered trademark of State Street Corporation,
used for its financial markets business and that of its affiliates.
Products and services may not be available in all jurisdictions.
©2019 State Street Corporation.

statestreet.com/securitiesfinance
2397543.1.1A.AM.
News Round-Up

Saudi Stock Exchange to formalise

short selling rules

The Saudi Stock Exchange (Tadawul) has

undertaken two concurrent consultations
that look at formalising rules for short
selling, securities borrowing and lending, the
International Securities Lending Association
(ISLA) revealed.

According to ISLA, this comes as part of Saudi

Arabia’s ambitious plan to develop their capital
markets infrastructure.

Meanwhile, inclusion of Saudi Arabia in the

Kazakhstan’s AIX introduces securities lending MSCI indices is driving the development of
market infrastructure to provide investors with
Kazakhstan’s Astana International lender will also be allowed to perform the opportunity to short sell securities listed in
Exchange (AIX) has introduced four covered short selling. the kingdom.
initiatives including securities lending
and borrowing, covered short selling, Meanwhile, the multi-custody settlement Industry collaboration on SFTR Testing
multi-currency settlement and a new allows investors to trade securities
custody model. listed in Kazakh Tenge and settle these Delta Capita, Pirum Systems and IHS
trades in USD with the facility to add Markit are collaborating with an industry
Securities lending and borrowing is additional settlement currencies based testing consortium to help firms meet
available to appointed market makers on customer demand. Securities Financing Transactions Regulation
after being authorised by AIX regulation (SFTR) requirements.
and compliance. Additionally, the new custody model
provides an improvement for institutional In a recent announcement, Delta Capita revealed
The securities lending and borrowing investors and their assets remain under the creation of a consortium of banks to establish
programme is governed by the industry the safekeeping of a custodian who is a a standardised SFTR industry test pack.
standard Global Master Securities participant of AIX central security depository.
Lending Agreement (GMSLA) or any other Under this collaboration with Pirum and
agreement acceptable to AIX. AIX noted that they aim to improve the IHS Markit, Delta Capita will make the test
overall efficiency of its market place while pack available to IHS Markit and Pirum to
According to AIX, market makers entering increasing international investors’ level support testing and provide feedback to
into a valid GMSLA with an authorised of confidence. the consortium.

A range of apps that will transform

your securities finance business
2016 and 2017
Best Software Provider

6 Securities Lending Times

 News Round-Up

According to Delta Capita, customers

of the joint IHS Markit and Pirum SFTR
solution who have independently licensed
the consortium test pack will benefit from
knowing the service, and potentially reduce
their own testing efforts and costs.

David Field, head of the securities finance

practice, Delta Capita, said: “The test pack
will provide full traceability to the RTS/
ITS, European Securities Markets Authority
guidance and industry best practices across
repo, BSB and stock borrow/loan.”

“It will provide users with the test data, test

scripts and expected results they need to
conduct their user acceptance testing and to
test with their counterparts, trading venues,
Global securities lending revenues down for Q2
service providers, central counterparties, tri- Global securities lending revenue totalled driven by declining demand for dollar
party agents and trade repositories.” $2.6 billion, down 10 percent of the denominated credits.
average Q2 revenue over the last three
He continued: “Consortium members will be years, according to Sam Pierson, director Meanwhile, exchange traded funds lending
able to benchmark their testing run rates and of securities finance, IHS Markit. revenues continued to underperform, which
pass rates to highlight areas of concern for was the result of lower fees and balances
review and remediation.” Equity lending revenues came in at $2.1 for high-yield bond funds, Pierson noted.
billion, which demonstrated a decline
Rajen Sheth, CEO, Pirum Systems, cited: of 17 percent compared with Q2 2018, Borrow demand for exchange traded
“We’re pleased to be able to support our Pierson found. products remains robust and Pierson
clients to leverage the testing consortium explained that Q2 balances were 12
in order to bring efficiencies to participants Asia equity lending revenues fell 14.6 percent higher year on year.
as they work towards meeting their SFTR percent compared with Q2 2018, the first
reporting obligation.” year on year decline in quarterly revenues He commented: “The year on year revenue
since Q3 2017. shortfall in the first half of 2019 relative
Pierre Khemdoudi, managing director to 2018 appears rather large, however it’s
and global co-head of equities, data Pierson also found that corporate worth noting that H1 2018 was the best
and analytics, IHS Markit, added: “The bond lending revenue fell 18 percent six month span post-crisis, making for a
securities finance industry will greatly year on year, which was primarily tough comparison.”

www.securitieslendingtimes.com 7
News Round-Up

benefit from the standardisation of testing Regulation (SFTR) Article 4 commence in April For firms acting on behalf of multiple
as we continue implementing technology next year. underlying entities information on the end
for SFTR reporting.” counterparty to the transaction must be
While buy-side firms’ direct reporting made available to the bank on the other side
“By integrating Delta Capita’s testing within requirements do not kick off until October, of the trade.
our SFTR solution, our common clients will levels of readiness are, for the most part,
be able to move forward with no additional significantly lower, Grady explained. Elsewhere in the article, Grady advised
effort, while being assured on the accuracy of firms to take decisions regarding the path to
the reporting.” In the article it was noted that some banks will compliance sooner rather than later, especially
offer a delegated reporting functionality which as there are just 196 working days before bank
IHS Markit: ‘Time is of the essence’ can reduce the preparatory efforts required for reporting requirements commence.
for SFTR the buy side firm.
IHS Markit and Pirum have been developing a
There is a growing concern that market Meanwhile, oversight of on-behalf reporting “state of the art” fully hosted securities finance
participants are not going to be ready to report remains key as the regulatory responsibility transaction reporting solution since 2016.
their securities finance transactions (SFTs) itself cannot be delegated.
when regulatory obligations start next year, System integration testing for users of the
Stephen Grady, head of market structure at IHS Buy side firms need to ensure they can supply IHS Markit/Pirum solution has been underway
Markit, has stated. their counterparties with sufficient information since April.
to enable reporting, Grady advised.
In an article for IHS Markit’s blog, Grady Grady outlined that there are 40 business
highlighted that the reporting trades by banks At a bare minimum, this will be active legal days before user acceptance testing (UAT)
under the Securities Financing Transactions entity identifier codes for the contracting entity. begins at the start of September, giving clients

Transforming the world of

Securities Finance.
At Stonewain, we understand the importance of being secure and agile, which is why we
created a fully-integrated technology solution 'Spire'. Spire's architecture meticulously integrates
with your organization's IT system, consolidates workflows and cohesively performs with other
proprietary systems.
It's time to give your business the Spire Advantage.

Global Stock Loans and Borrows Collateral Management & Optimization Repo/Financing
Agency Lending Cash Management Regulatory Locates

400 Connell Drive, Suite 5300, Berkeley Heights, New Jersey 07922
info@stonewain.com www.stonewain.com 973-788-1886 973-315-3092

CUT SIZE 180mm x 120mm BLEED SIZE 6.35 mm X 6.35 mm

8 Securities Lending Times
 EXPERIENCE
One collateral platform to manage tri-party
and margin

Optimized globally, across trades, assets

and custodians

Delivered by a trusted partner

Put our experience to work.

Contact your J.P. Morgan representative to learn how we can help.

jpmorgan.com/cfs

J.P. Morgan is a marketing name for the Investor Services businesses of JPMorgan Chase Bank, N.A. and its affiliates worldwide.
JPMorgan Chase Bank, N.A. is regulated by the Office of the Comptroller of the Currency in the U.S.A., by the Prudential Regulation Authority in the U.K. and
subject to regulation by the Financial Conduct Authority and to limited regulation by the Prudential Regulation Authority, as well as the regulations of the
countries in which it or its affiliates undertake regulated activities. Details about the extent of our regulation by the Prudential Regulation Authority, or other
applicable regulators are available from us on request.
The products and services described in this document are offered by JPMorgan Chase Bank, N.A. or its affiliates subject to applicable laws and regulations
and service terms. Not all products and services are available in all locations. Eligibility for particular products and services will be determined by
JPMorgan Chase Bank, N.A. and/or its affiliates.
© 2018 JPMorgan Chase & Co. All rights reserved.
News Round-Up

the opportunity to use the pre-production This follows the SC’s visit to the Shenzhen He added: “We look forward to deepening
environment for six full months before the first Stock Exchange (SZSE) on 4 July where Wu the ties between Malaysia and China through
bank trades are reported in April. Lijun, chairman, SZSE, emphasised the success this collaboration.”
of SZSE in financing innovative Chinese
This allows the identification of booking model companies and small and medium enterprises. Traiana modernises equity swaps
practices which will need to change to avoid
breaks at the trade repository. According to the SC, this includes those in Traiana has launched a new automated
technology and advanced manufacturing post-trade lifecycle management service to
He concluded: “There are now just eight working sectors, which are closely aligned to Malaysia’s modernise equity swaps.
weeks before UAT begins for clients and given economic priorities.
these weeks span the summer holiday period The Equity Swaps Lifecycle Management
and the fact that legal contracts must be agreed Meanwhile, there are a number of SZSE-listed service will transform the market’s previously
(a process typically taking two to six weeks) companies operating in Malaysia under the manual, labour intensive and inefficient
before data can be onboarded (another three to Belt and Road Initiative creating opportunities post-trade affirmation processes for clients
five weeks), time is very much of the essence.” for collaboration between both countries’ globally, Traiana revealed.
capital markets.
Malaysia Capital Market to strengthen According to Traiana, it will improve the
collaboration with China Datuk Syed Zaid Albar, SC chairman, said: longstanding negative affirmation issues in
“The SC, along with Bursa Malaysia have had the equity swaps market by allowing buy side
The Securities Commission Malaysia (SC) is numerous engagements with the SZSE in recent firms to view all exceptions in one place.
set to strengthen closer collaboration between months to discuss initiatives for greater cross-
Malaysian and Chinese capital markets to border connectivity, exchange of technical Meanwhile, disputes can be resolved between
benefit both economies. expertise and human capital development.” counterparties on a daily basis using the

EXPERTS IN:
SECURITIES LENDING
ACHIEVE GREATER
RISK MANAGEMENT
CLIENT SERVICING
ALL OF THE ABOVE

To learn more, visit northerntrust.com/securitieslending

ASSET SERVICING \ ASSET MANAGEMENT \ WEALTH MANAGEMENT

DIRECTED TO PROFESSIONAL CLIENTS ONLY. NOT INTENDED FOR RETAIL CLIENTS. FOR ASIA-PACIFIC MARKETS, THIS MATERIAL IS DIRECTED TO
INSTITUTIONAL INVESTORS, EXPERT INVESTORS AND PROFESSIONAL INVESTORS ONLY AND SHOULD NOT BE RELIED UPON BY RETAIL INVESTORS.

© 2016 Northern Trust Corporation, 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liability in the United States. Products and services provided by subsidiaries of Northern Trust Corporation may
vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market offices, visit northerntrust.com/disclosures. Issued by Northern Trust Global Services Limited.

10 Securities Lending Times

 News Round-Up

exception manager tool, rather than after The tools consolidate Cash PB financing BlackRock sees dip in Q2 figures
monthly resets are struck. data across prime brokers and highlight the
drivers as well as potential avenues to reduce BlackRock has revealed a 2 percent decrease
Joanna Davies, global head of Traiana, manual reconciliation. in year-over-year revenue for Q2, which was
commented: “Until now, it has been extremely partly driven by lower securities lending
challenging for buy-side firms to sift through Key features include high-level summary of revenue, and lower performance fees.
multiple swap provider reporting statements financing cost drivers with trends; the tools
in various formats, across thousands of can also identify breaks between actual The Q2 report found an 11 percent decrease
trades and positions per day to look for and agreed charges for prime brokerage in operating income year-over-year, which
potential issues and work out exactly what benchmarks and spreads. reflects $61 million of fund launch costs. It
has changed at the month-end reset. Our also showed $151 billion of quarterly total net
new Equity Swaps Lifecycle Management Additionally, the tools can create configurable inflows, or 9 percent organic asset growth,
service creates huge operational efficiencies grid views and set preferences for persistent driven by record fixed income and cash activity
and significantly reduces settlement risk for reporting, CME Group noted. for BlackRock’s Q2.
market participants.”
As well as this, the tools can compare the cost Laurence Fink, chairman and CEO, said: “BlackRock
ENSO introduces reconciliation and of financing equities, bonds, or other asset continues to be disciplined in the way we invest in
replication service types across all providers. and evolve our platform. By approaching client
needs comprehensively, bringing together the
ENSO has introduced a financing replication CME Group also outlined that further key entirety of our global investment and technology
service, which provides reconciliation and features include the ability to view/export a 13 platform, I am more confident than ever that
replication tools, according to the Chicago month historical trending data on a summary, we will continue to deliver exceptional long-
Mercantile Exchange (CME) Group. detail and break reporting. term value for both clients and shareholders.”

APEX
SECURITIES FINANCE
AND COLLATERAL MANAGEMENT
FIS’ integrated Securities Finance and Collateral Management
solution has everything you need to manage and automate your
entire securities finance business.
• Enterprise wide collateral management, trading and optimization
• Access to global, intraday securities lending market data and
insightful analysis
• Managed services to help reduce total cost of ownership

Efficiency and confidence. The best of both worlds.

FIND OUT MORE TODAY – WWW.FISGLOBAL.COM
©2019 FIS
FIS and the FIS logo are trademarks or registered trademarks of FIS or its subsidiaries in the U.S. and/or other countries. Other parties’
marks are the property of their respective owners.

www.securitieslendingtimes.com 11
Malik’s Memo

ESMA’s SFTR open hearing

On 15 and 16 July, the European Securities and Markets Authority There are questions on settlement failures (as opposed to defaults)
(ESMA) held a series of hearings with the market to consult on the and whether these should be reported. My view is that settlement
Securities Financing Transactions Regulation (SFTR). A closed-door failures should not be reported although there are differing opinions.
session with trade repositories was followed by an open consultation.
The following day an invitation-only closed session was held with Security/collateral quality must be reporting and participants were
trade associations. concerned that current market practice does not necessarily reconcile
that field. ESMA’s level III guidance states that counterparties should
As the summer holiday months of July and August commence, ESMA agree on the credit rating in accordance with Regulation (EG) No
packed off the industry with much to consider. Bear in mind, any oral 1060/2009 (CRAR). In the event of lack of agreement, counterparties
views expressed by ESMA on the day do not constitute official advice. should report the lowest applicable rating.
ESMA was keen to note that their official views will be published in
their finalised guidelines in Q4 once they have been formally adopted There remains significant uncertainty as to how to classify and hence
by the board of directors. report different cash flows and securities. In complex and net exposure
scenarios, what precisely is classified as the bilateral variation margin,
Here is a selection of key points from the hearings: collateral, loan and how these all interrelate can become confusing.
Indeed it was telling that perhaps the most complicated aspect of
Liquidity and collateral swaps. Both are defined as Securities SFTR fielded no questions—much to my surprise and that of ESMA.
Financing Transactions (SFTs) in recital 7 of the level I text, however I suspect institutions and trade associations will save their views for
table 2, field 4 has no valid option for the pair. ESMA confirmed that their submissions.
they are to be reported as one of the four main SFTs, most probably a
securities lending with the correct uncollateralised fields completed. On submissions, ESMA stated that it is their policy to publish submissions
The confusion arises from the fact that the other four SFTs are within the week, although the summer holidays might delay this.
expressly defined but these two swaps are not. Indeed even mention
of them is buried away in the preamble recitals. ESMA’s underlying message to the industry, to which I am broadly
sympathetic, is that SFTR is law—it is your job to take whatever steps
Backloaded SFTs will be paired and reconciled in the same way as are necessary to ensure you can report. This may require stern words
new transactions. Participants raised concerns that for historic with issuers in foreign jurisdictions to voluntarily obtain LEIs, or foreign
transactions, obtaining the legal entity identifier (LEI) of issuer may not lenders to voluntarily provide timely extra information. It will certainly
be possible. While they have the option not to trade new transactions require considerable changes and instituting new procedures to
for securities whose issuer does not possess an LEI, for historic ensure counterparties are reporting identical static data.
transactions no realistic choice is available. ESMA hinted that trading
out of the position might be the only option. In extremis, a firm may be precluded from concluding a particular
transaction due to no other reason than an inability to subsequently
On the LEI of issuer ESMA stated that there is an excess of securities report the transaction.
available. The suggestion being that, if an issuer is not predisposed
to obtaining an LEI, one can choose a different security. Participants
complained that this would have an adverse effect on liquidity for
those securities.

Regarding collateral reuse for securities, ESMA confirmed that the

assets’ own denominator value needs to be populated notwithstanding
the acknowledged difficulty of tracking one’s inventory of every single
stock across all desks and traders. ESMA stated that their hands were
tied as the formula is lifted from the Financial Stability Board (FSB). The
FSB is a G20 supra-national institution that will aggregate data from
across jurisdictions, hence the formula must be adhered to.

Seb Malik
There were strong hints dropped that firms should adopt a best- Head of financial law
effort basis. Market FinReg

12 Securities Lending Times

SFTR solution
No gimmicks

Pirum and IHS Markit, Pirum & IHS Markit’s SFTR Solution offers the
securities finance industry the expertise and flexibility
solving your SFTR needed to meet the challenge set by SFTR. A modular,
requirement together fully hosted reporting solution that combines IHS
Markit’s pedigree in regulatory reporting and data
Securities Lending | Repo management, with Pirum’s expertise in post trade
reconciliation and automation.
For more information contact connect@pirum.com
or call: +44 (0)20 7220 0968 (UK & Europe)
+1 917 565 8575 (US)

In partnership with

www.pirum.com
Proud to be Proud
Sunil Daswani explains why workplaces should be inclusive of all people,
no matter their differences
Justin Lawson reports
 LGBTQ+ Pride

Lesbian, Gay, Bisexual, Transgender and Queer (LGBTQ) Pride Month Gender, of course, affects a far larger part of every workforce, at
is celebrated each year in the month of June to honour the 1969 least in most industries, as women account for more than half the
Stonewall Uprising in Manhattan. The Stonewall Uprising was a population. In contrast, recent surveys suggest that only around
tipping point for the Gay Liberation Movement in the US. 10 percent of the global population prefer to be in a same sex
relationship—and of those, there may be many who wouldn’t admit
It has now been 50 years since this uprising and many industry it in any case.
sectors are finally looking seriously at all areas of equality in the
workplace. Securities Lending Times speaks with Sunil Daswani, My community, known as “Sindhis”, is a community that came from a
business development for securities lending and repo solutions region formerly in India but following the partition between India and
at MarketAxess, about the challenges he has faced as a gay man Pakistan in 1947 is now in Pakistan. This led to many of my community
working in the finance industry. What follows are his very own personal crossing over the border back into India but finding themselves still
experiences and opinions. displaced and ending up in countries all over the world as they had no
particular region, even in India, where they felt at home. As a result, we
How did you get into the finance industry? are a global community.

From a very young age, I always had a passion for finance. My As of 2019 I am the only open and out Sindhi in my community in
father, who I am very close to, was a huge influence and support London that I know of. This community has a population in excess
to me and his desire was to see his son in finance. I come from a of approximately 30,000 people. Here lies the difficulty of sexual
family who are generally mathematicians or scientific in nature. I orientation and the ability of diversity to be applied. This protected
focused my academic life by building up the knowledge I needed characteristic has yet to be recognised—and in many cases even by
to be in finance from studying Economics to eventually majoring in those individuals themselves.
accounting and finance a BSc. (Econ) from the London School of
Economics. My career mainly spanned across three banks before Throughout your life and career, you have been very
I ended up working for a leading fintech firm—MarketAxess. I have closed about your sexuality. How difficult, then, was it
covered nearly every role from operations to middle office and within for you to recently tell your family and workplace?
the front office product development and management, trading and
sales/relationship management. My current role at MarketAxess Being Indian by origin and given gay marriages were only legalised in
is as a senior consultant helping to develop its securities lending India in the last year there was a lot of pressure from my background.
and repo businesses, including taking its new Securities Financing Having also worked in finance in my formative years it was a somewhat
Transactions Regulation (SFTR) joint solution to market. straight male dominated workplace.

Over the past few years, a lot of securities finance I grew up in the era where AIDS/HIV emerged and there was no
conferences have had panels discussing the benefits cure. This frightened me and stopped me from ever entering a
of a diverse workforce, but this diversity seems to only gay relationship.
extend as far as gender. Why do you feel this is?
Then, with the other issues aforementioned, I blanked a significant
This is indeed an interesting topic to bring up. Diversity and inclusion part of who I was out of my life.
is front and centre of nearly every industry around the globe. Of
course we do not need to recognise this just in the workplace but I never had a relationship with a man (or woman for that matter) untiI
it should be everywhere from, schools, homes and in any form of I was 40. At 41, the day I broke up with the first person I ever went out
recreational activity. with, my mother looked at me and told me she knew I was gay and
said it didn’t bother her. She knew what she was doing, she effectively
Every type of protected characteristic is important in its own way: gender, helped me through my break up with my first partner but also released
race, age, disability and sexual orientation. The one area of discrimination me from a prison I had put myself in. In that moment, a huge weight
that could be different really is sexual orientation as most other forms fell off my shoulders.
of discrimination are against things visible to the human eye. Sexual
orientation is generally not visible, and certainly not all the time. It took me five further years to slowly tell my extended family and
close friends, but I was so in love with my career and was too
As this key difference exists, and given the slow evolution of LGBTQ+ scared of it ever having an impact on me that I decided not to tell
awareness and acceptance, coming out for people has more often anyone at work.
than not been incredibly difficult. Of course, this varies depending on
background, culture, era and region. But it is a sad fact that, in 2019, I also worked on the principle that diversity means treating people the
there are still over 70 countries in the world where it is illegal—not just same. If someone is straight they do not need to come into the office and
not accepted, but actually illegal—to be gay. announce their sexual orientation and so I followed the same principle.

www.securitieslendingtimes.com 15
LGBTQ+ Pride

Having joined MarketAxess in 2019, I decided at the interview stage Having said that, I have attended London Pride Parade and I do so
to make it known I was gay but without some great announcement. I really to thank all those individuals who participate. Also for those
subtly, in more of passing, mentioned my sexual orientation and my who have fought for the rights of LGBTQ+, and represent something
desire to work on setting up a foundation called ‘Proud’. The purpose that took me a long time to come to terms with myself. There’s
of the foundation was not to focus just on LGBTQ+ but more so to nothing wrong with me and I thank all those people who have stood
help people, whether they were gay or straight, black or white, tall or firmly by representing who they are—loud and proud.
short, fat or thin or anything else that they labelled themselves, to
accept themselves if they felt their diversity held them back. I have The only thing that gets me annoyed is when the word ‘revenue’ comes
seen human beings hold themselves back from true talent they may in to play with diversity and inclusion. There shouldn’t be a numbers
have due to some label that affects their life. or percentage or ratio of statistics that firms try to achieve. The best
people should be hired to do a job.
While I’ve been a little busy to get the foundation up and running, it
really is my dream. So watch this space! With financial services firms needing to better align
their corporate policies and culture, change will only
You have had a very successful career holding happen when more senior managers come out as an
positions like head of international securities lending ally and create what is known as a ‘positive halo effect’.
for leading custodian banks and chairing a major Have you had any experiences of that effect?
industry association the Pan Asian Securities Lending
Association. Do you ever feel race or sexuality have My current manager has demonstrated that effect. He is not LGBTQ+,
stopped you achieving more? however when I mentioned at the interview stage that I was gay the
conversation just carried on without any reaction. I almost thought he
To be quite honest, and in a nutshell, the answer is no. It has never had not heard me. That’s the way it should be.
stopped me from achieving more. I see everything in life as a
blessing. My view is that when things don’t quite happen the way I then ‘outed’ myself to a few colleagues and again it was like—did
you expect them to or you take a blow to your life, whatever it is, it they hear me?
is important to perhaps mourn or grieve for an acceptable period of
time, learn from it and move on to be bigger and better in every way I was worried about discussing my private life but people genuinely were
in life. Lessons learned allow us to grow, and sometimes the hardest interested—although maybe mainly because I was dating someone
lessons reap the most benefits. Being gay and living my story you from a TV show and they were intrigued because he was seen to be
can see it meant that I really focused on my career, but it meant I somewhat of a ladies man! And no, I’m not going to reveal who.
didn’t enter into any relationships.
The bottom line is you need people at all levels to support differences
Once, years ago, I met a spiritual leader and listened as he was asked and it should be from different backgrounds, ages and sexes. Overall,
to play a simple word association game. He was given the word “love”. that creates the normalisation that LGBTQ+ people I believe want—
His response was “crippling!” although I would never presume to speak for the whole community.

And while not all of us agree, I think it’s clear that relationships and No one wants to stand out in a room or in a meeting or in their jobs
love take energy and commitment. Being late in the game of love and due to their sexuality and I believe it’s important to be recognised for
relationships because I was gay meant that I focused more on my career. who we are—our skills, our competencies and our characters, but not
our sexual orientation.
Living in London, I’ve actually rarely experienced racism, given that the
Business development for securities

city is a multi-national, multi-faith community. I know that there are

some who might be quick to label positive and negative impacts on
their career as race-related, but I’m not one of them. I’ve never felt like
it’s been an issue.
lending and repo solutions

Do you feel firms need to do more to demonstrate the

inclusive culture they wish us to believe exists?
Sunil Daswani

My view is that diversity and culture, if it is to really be embraced,

MarketAxess

should be handled very sensitively. There is confusion, in my

opinion, around favouritism versus equality versus fairly treating
people. I have never supported such activities as I feel this is all
very personal.

16 Securities Lending Times

Are you ready to report for SFTR ?
COME AND TALK TO US

www.regis-tr.com commercial@regis-tr.com

REGIS-TR is a leading European trade repository offering

reporting services covering all the major European trade
repository obligations. Our unique expertise in Securities
Finance and Regulatory Reporting makes us the natural
choice as your TR partner for SFTR. Scan the QR code to
find out more …
All things Asia
Mark Snowdon, head of capital markets, Asia Pacific at Northern Trust,
discusses the importance of securities lending in Asia and what lies ahead
in this space
Why is securities lending important in Asia? Such broadening initiatives include expanding collateral profiles or
reviewing alternate trading structures such as ‘pledged collateral’
The global challenges we see emerging across the broader asset in order to drive increased returns. Other trends are the growth of
management community are very much applicable to asset managers alternative routes to market such as non-traditional borrowers which
in Asia Pacific. Low-rate low-yield environment organisations such as agent lenders are bringing to asset managers. This includes direct
asset managers and sovereign wealth funds view securities lending access to the hedge fund community by secure and automated
as an integrated investment vehicle, which complements their suite of channels, which generates additional returns in an environment where
front-office activities. The drive to enhance performance amidst rising risk is managed and controlled by the bank acting as the agent lender.
cost pressures, although a challenge, is also helping to grow momentum These types of initiatives are markedly different from the past, where
in the securities lending industry for both asset managers and asset securities lending was deployed almost solely to offset costs, and it is
owners. Lending is increasingly used to help achieve higher levels of risk- a trend that we predict will continue.
managed performance, with asset managers working closely with agent
lenders to build bespoke lending programmes that optimise returns While some asset managers are working closely with their boards
within their prescribed levels of risk tolerance. These programmes are to engage in securities lending for the first time, others are leading
then adjusted and broadened over time, in collaboration with the asset the way in using security lending as a vehicle to meet the needs of
manager’s agent lender, to promote new ideas and revenue streams that other functions with their businesses. Through concepts such as cash
sit within the manager’s compensated risk profile. collateral self-investment, agency repo, collateral optimisation and

18 Securities Lending Times

 Asia Insight

peer-to-peer lending, another interesting theme is the way in which participants to ensure that regulations are well-understood, and the
securities lending can support the cash management and liquidity benefits are delivered.
needs of the treasury function. On a market-wide basis, advancing
regulation and its impact on capital and borrower balance sheets, How are advances in technology transforming the
is leading to the possibility of widely used securities lending central industry in the region?
counterparty clearing platforms.
Advances in technology are transforming financial markets globally,
Asia remains an important region for securities lending with good and the Asian securities lending industry is no different. Technology is
prospects for growth and a range of compelling opportunities an opportunity to enhance the entire lifecycle, from trading strategies
for asset managers. As the low-return and low-rate environment through to operational efficiencies. The market is focused on investing
headwinds continue, the need to enhance performance is critical, and in areas that will unlock value for clients such as trading technology,
this continues to encourage Asian asset managers and sovereign which can help deliver greater automation of the trading function. This
wealth funds to seek risk-managed returns from both traditional and henceforth allows trading teams to focus on those opportunities that
more advanced securities lending programmes. derive the most value for clients.

What is the significance of regulatory and governance New technologies in the machine learning space, robotics, artificial
developments for securities lending? intelligence (AI) and data analysis are all areas of focus for the
industry. The sourcing, enrichment and delivery of data will be a key
History tells us that regulation will continue to be at the top of benefit to lending agents and their clients, allowing asset managers
everyone’s agenda for the foreseeable future. Despite Asia’s to optimise returns further. We expect the practical application of
regulatory fragmentation, it is not unreasonable to expect the gradual these technologies to drive competitive advantage for performance,
convergence of securities lending rules across jurisdictions over time. efficiency and better client experiences.
While different regulators have different priorities due to economies
developing at various paces, there appears to be a willingness to make Building out technology to support the adoption of new models such as
changes to securities lending regulation and rules that align with a ‘pledged collateral’ and central counterparties will continue, allowing
fairly standardised model. The broader regulatory trends across the the industry to gain traction in providing trade matching and balance
region seem to recognise the benefits to participants in pursuing sheet efficiencies. As borrowers look for different trade structures to
greater harmonisation, and we hope that regulators take this into meet their specific requirements and capital positions, investment in
account, albeit at a pace which complements the development of alternative routes to market remain important. Areas of development
capital markets on a country-by-country basis. around indemnification flexibility, directed trades, lending to hedge
funds and a broadening of securities financing services will all require
More specifically, developments such as Securities Financing commitment to investment and resourcing to ensure clients benefit
Transactions Regulation (SFTR) and resolution stay protocols have from progress.
provided certainty around details and implementation timeframes
globally. As these regulations are implemented, they will allow the We will see increased use of automated pricing mechanisms, which will
industry to be better positioned for a flexible and more efficient future enable lenders to more accurately predict and determine appropriate
for all participants. pricing levels for “specials”. This will enhance transparency and unlock
value for clients through the automation of the trading function, which
SFTR will provide an opportunity to bring the industry closer to a single in turn frees resources to seek maximum trading value.
model and will ensure that industry participants start standardising
around securities lending data. The industry continues to work well The potential for blockchain technology to drive both
with both lending agents and borrowers to ensure that trade lifecycles small-scale benefits for lenders and borrowers, and major
are managed across the various systems in place today, and this industry-wide improvements and opportunities will become
standardisation should make the industry more efficient. Fewer more widespread. Through our experience and expertise
exceptions and trade processing delays will improve trading, and should in deploying blockchain technology for private equity
break down barriers to entry, especially for technology firms to bring markets, we believe distributed ledger technology can
benefits to the industry. Another benefit would be the improvements in improve the transparency and efficiency of the securities
timeliness of data provision to asset managers who led their portfolios. lending market.

Changes to the calculation for risk-weighted assets have been This will provide potential opportunities to achieve
approved by the Basel committee and will continue to impact the industry cost efficiencies across the value chain and
industry globally. Reducing the regulatory costs of certain securities as confidence grows in the technology sector, future
lending transactions is likely to be the catalyst for increased activity opportunities are likely to develop in a wide range
and we need to work with regulators, clients and other industry of areas.

www.securitieslendingtimes.com 19
 INTRODUCING

The Hanweck
Borrow Intensity
Indicator

Delivering new levels of

transparency into the
securities borrow market

By mining rich data from the options market in an

understandable way, the Hanweck Borrow Intensity
Indicator provides:

›› Real-time transparency into securities lending rates

›› Rapid signals on rising shorts and squeezes

›› Unique insight into multiple financing rates across time

›› Valuable data for risk estimation and factor models,

portfolio construction and smart beta approaches

› NEW YORK › BELFAST › CHICAGO

Hanweck is a leading provider of real-time risk analytics on global

derivatives markets, focusing on the large-scale risk problems of banks,
broker/dealers, hedge funds, central counterparties and exchanges.

Hanweck.com
Deal or no deal?
Against a politically uncertain backdrop, the UK’s
securities lending industry is seeing growth and
preparing for the next wave of regulation, while the
risks of a no deal Brexit continues to place pressure on
financial services
UK Update

The UK’s securities lending market is currently seeing growth with of overlapping and contradictory derivatives trading obligations
new entrants regularly coming to the UK market, according to has not been addressed.
industry experts. This is, however, against the political backdrop of
uncertainty surrounding Brexit, and whether or not there will be a In the absence of equivalence, conflicting EU and UK trading
deal or no deal Brexit. obligations would prevent EU27 and UK counterparties from trading
in scope derivatives with each other on either EU or UK venues, AFME
Recently, a survey conducted at Vermeg’s Annual Collateral explained. AFME urged authorities to continue to work together and
Management Conference found that over half, 52 percent, of explore all avenues to avoid overlapping trading obligations and
delegates thought that having London outside the EU will have minimise disruption.
a negative impact on collateral management harmonisation. The
survey found that 15 percent said they didn’t feel there would be In terms of firms’ preparedness, Mike Lambert, product director
a negative impact, while 33 percent said that they were unsure. at Broadridge Financial Solutions, says: “With regard to Brexit,
Meanwhile, the upcoming Securities Financing Transactions most firms already have deal/ no deal contingency arrangements.
Regulation (SFTR) is also a hot topic in the UK with firms preparing With so many variables to consider it’s difficult to predict any
for the implementation date in April next year. long-term outcomes.”

Commenting on the current state of the UK’s securities lending market, Trending in the UK
Reshad Mullboccus, acting global co-head of securities lending, HSBC
Securities Services, observes: “The UK market in 2019 continues Discussing UK trends, Lambert highlights that trends in the UK are
to provide stable returns to beneficial owners through stable short- following the international pattern such as the focus on the SFTR and
interest and hedging demands, quarterly scrip dividends (HSBC, BP Central Securities Depository Regulation (CSDR) compliance.
& National Grid) and directional names (Sirius Minerals, Blue Prism &
Anglo American), according to data from IHS Markit.” Lambert continues: “Pledge and CCPs continues to make a slow
advance and environmental social and governance (ESG) is now
“Broadly speaking, lendable supply remained flat at US $765 billion, coming to the fore. What ESG means for securities lending and what
while loan balances fluctuated between US $40 to 43 billion in the we have to do about it continues to be debated but it is clear that
same time period, the data shows. As a major global market and hub change is coming.”
for Europe, the UK’s overall lending utilisation has suffered from a
trend of deleveraging and re-risking across hedge funds year-to-date.” “Securities lending must become more ESG-aware and that means
changes to systems and processes and even the way that firms
Deal or no deal? do business.”

Despite an original Brexit deadline of 29 March 2019, the UK still He adds: “As I said it is all about SFTR and CSDR compliance at
remains as part of the EU with a new deadline of 31 October, ironically present. We expect that once this round of regulations is bedded
falling on one of the scariest days of the year, Halloween. in, people will look at ways to add further automation into the
trade lifecycle.”
According to the Association for Financial Markets in Europe
(AFME), a no deal Brexit is likely to have a significant impact on Also discussing UK trends, Wayne Burlingham, acting global co-
the financial services sector, despite the substantial work done to head of securities lending, HSBC Securities Services, says: “There
mitigate risks. In a paper highlighting the risks, AFME cautioned are two main trends to report. The first is the growing amount
that the equivalence decision for UK central counterparties (CCPs) of interest among potential new entrants to the market on the
is currently due to expire on 30 March 2020. lending side, primarily as a result of the search for new revenue
sources which can usefully offset costs, such as custody and
AFME noted that unless certainty is provided as to the extension of fund administration. Year-to-date we have already evaluated more
recognition, UK CCPs might be required to start offboarding processes potential portfolios than we did during all of 2018.”
for EU27 members by the end of 2019. Elsewhere in the paper, AFME
outlined its concern that EU investors may still not be able to access “The second trend is that participation is becoming very
major pools of liquidity for a number of EU27 shares and be unable to polarised. For clients that are actively engaging with their agents
execute trades at the best available price. and responding to change, revenue levels are generally holding
up reasonably well. Clients that are not engaging, however, risk
AFME recommended that the UK and EU27 authorities put in being left behind and revenue will, of course, suffer. Securities
place the necessary arrangements to ensure continued access lending, as a product, continues to evolve and, in our experience,
of members from both UK and EU27 to infrastructures under their clients appear to be either actively engaged or disengaged with
supervision. The risk of disruption to EU and UK markets because few adopting the middle ground.”

22 Securities Lending Times

 UK Update

Regulatory impacts Looking to the future

SFTR will take legal force in April next year. Despite its complexities, Looking at the UK’s securities lending horizon for the next five years,
some industry experts have argued that it will shine a light on the Lambert predicts that we will see more electronic trading and more
things in the industry that we sometimes shy away from. People will automation in future.
have to look at their trading systems and behaviours in more detail.

Reinforcing this point, Lambert says: “While challenging for the industry,
SFTR will provide some benefits once the dust has settled post-go live.
In particular, the use of unique transaction identifiers (UTIs) and legal With derivatives
entity identifiers (LEIs) will provide greater transparency in the event of
a crisis. SFTR may help macro-prudential regulators and central banks reporting under EMIR,
to identify build ups of systemic risk and allow them to implement
counter-cyclical measures.” regulators are already
“The regulation should also drive greater standardisation in the industry dealing with incredibly
and lead to increased scope for automation that improves market
efficiency. Finally, it will be a new source of data that could provide rich large volumes of data.
new analytics to inform decision making in the front office.”
The question is, will the
Burlingham also agrees that SFTR can provide benefits, he says: “The
driver of the regulation is the need for regulators to have full insight regulators be able to
into market activity, particularly on the shadow banking side. Given the
issues suffered by a number of different firms in the financial crisis make sense of the data?
of 2008/9, including borrowers, some agent lenders and beneficial
owners, there is a good case for supporting any regulatory initiative
that could prevent reoccurrence.”

Discussing the deadline date, and how many firms will get it right,
Lambert expects most firms will get over the line in time to meet the
deadline. Many firms, however, have not yet defined a detailed and
robust operating model for SFTR and to help with this Broadridge has He affirms: “Smarter, more efficient trading and operations are the
launched a consulting service to help firms comply, says to Lambert. only way that firms will be able to deal with the increasing costs driven
by regulation and still maintain profitability.”
He states: “It is likely that matching rates will initially be very low.
Counterparties who do not provide timely accurate data will create “This includes compliance costs for SFTR and CSDR, and future
additional operational overhead for those who do, for example, breaks. iterations of these rules (SFTR Phase 2 etc).”
Once live, the trade repository reconciliations will highlight these
breaks, and inevitably some firms will do better than others. Even at Burlingham predicts: “In line with the rest of the financial services and
this early stage it will become apparent to a firm and its counterparties other industries, it’s all about digital and data.”
if they have serious issues.”
“The growth in trade automation continues apace and with even
In terms of the abundance of data that will come with SFTR, more information becoming available (think SFTR for example)
Lambert comments: “With derivatives reporting under European those providers that are able to exploit new opportunities will
Market Infrastructure Regulation (EMIR), regulators are already ultimately prevail.”
dealing with incredibly large volumes of data. The question is,
will the regulators be able to make sense of the data? Is the data “Within five years there is real potential for trading to be almost
rich enough to allow them to see the market interconnectivity and completely fully automated with machine learning and artificial
collateral velocity data they seek?” intelligence replacing the role of traders.”

“In my view, the answer to that is ‘not in this phase’. That’s why I He adds: “Machine to machine has to be viewed as the natural
think we can look forward to ‘SFTR Phase 2’ at some point in the evolution but this of course requires significant investment and a
future—once the regulator has had a chance to bed in and analyse significant number of people will need to adapt to a totally new way of
the ‘Phase 1’ data.” thinking and working.” SLT

www.securitieslendingtimes.com 23
The Securities Lending Journey
Industry legend Carol Kemm discusses highlights from her career in
securities lending, how the industry has changed over the years as well as
her predictions for the future
no package software system available to the Money Brokers, and daily
Maddie Saghir reports
borrow and loan transactions were recorded in a manual ledger, or on an
How has the industry changed since you started your Excel spreadsheet. All fee statements were created manually at the end
career in 1985? of each month and sent out to lenders and borrowers.

1985 was a year prior to ‘Big Bang’, and the UK securities lending market Big Bang happened in October 1986, when the market was opened up
was heavily controlled by the Stock Exchange Money Brokers, as they were to foreign banks, causing many of the original market makers and stock
the only ones permitted to borrow and lend equities and gilts. At the time jobbers to disappear, swallowed up by US, German, Japanese and French
the market comprised manual processing, physical stock certificates, banks. This continued over the next few years with many amalgamations
messengers walking around the city with bills and Certificates of Deposit happening on a constant basis. The long lunches disappeared as firms
(CDs), while all stock certificates were kept locked away in ‘the cage’ needed to manage the Japanese market in the morning and the US market
and taken out to facilitate the stock loans and the collateral provided in the afternoon. Most firms had systems available prior to Big Bang or they
against them. Talisman was the Stock Exchange system for equities and would have been unable to manage the volume of business that occurred.
settlement was on a fortnightly cycle, the Central Gilts Office ran the UK Gilt
market and Money Market instruments were managed by a different body. Since then the securities finance business has changed enormously,
there are no longer any market trading floors, and book entry
We sent 1.5 inch computer tapes to the Stock Exchange at the end of each processing facilitates borrows and loans, with physical certificates
day, and received back the updated details to load up into the internal being phased out some years ago. Talisman was replaced by CREST
system the following morning. There was a daily ‘top hat’ walk to the Bank eventually, after an abortive attempt to bring Taurus in. Following
of England for an 11am meeting with representatives of all the banks, this, there was a higher emphasis on collateral management, with
market makers and discount houses to discuss liquidity and interest both cash and non-cash collateral being taken against stock loans,
rates. Margins were high for collateral against equities, I remember a although cash has always been used as collateral for repo trades.
margin of 15 percent, and it was principally non-cash collateral, rather The business has become much more global over the years, and
than cash. Fee rates were quite often provided as fractions. has encompassed many other aspects of securities finance, moving
away from the pure borrowing and lending of equities and bonds.
Long lunches were enjoyed after the morning borrows and loans had More international markets were added to the portfolio for lending
been logged, and the day may well have been finished around 3pm once and borrowing and Bloomberg was used for requesting stocks.
the daily balancing was complete. There was very little automation, with There are now a number of options for the processing of automatic

24 Securities Lending Times

 Industry Timeline

borrows, although the market still retains some of the original focus I’ve recently heard industry participants say
on business relationships between the borrowers and the lenders. securities lending used to be more of a ‘back-office
business’ with less of a regard for optimisation of
What are your biggest and most memorable collateral, what are your thoughts on this?
career highlights?
I agree that collateral optimisation has become much more
For me, the first highlight was probably going live with the Money Broking important than it used to be. In the past, as long as acceptable non-
software we wrote for the Market Maker James Capel, and seeing this cash collateral—in the form of equities, bonds, CDs, bills, etc—was
being successfully used following Big Bang. The second highlight was received to cover the margin required on a loan, then there wasn’t
when Global One went live at London Global Securities and was then too much concern about how that collateral was used. Tri-party
purchased by Nomura, Barings (now ING) and Credit Suisse—all in 1992. agents weren’t that prevalent in the market, unlike now, where a
huge amount of business goes through the tri-party agents and they
I remember the first RMA conference we took Global One to—it was optimise the collateral on an ongoing basis all through the day. The
held in the Swan hotel in Disneyland in Florida—and we were the only concern about collateral started to some extent when Lehman failed
vendor booth, so positioned ourselves right outside the entrance to the in 2008 and the collateral wasn’t returned to the underlying giver as
conference room. Conferences in those days were much more serious efficiently and smoothly as everyone thought would happen in that
than they seem to have become over the last few years and we used to situation. In fact, we understand, that it took some considerable
do many demonstrations and give away a lot of sales literature, none years for everything to be unwound.
of which really happens at conferences now.
How has technology changed the dynamic of the industry?
We also put BLEND out of business once Lehman Brothers went live
on Global One in October 1994. BLEND was the transaction based It’s totally different to pre-Big Bang days or even the 1990s, as there
international securities lending platform started by I.P Sharpe in are so many more algorithms in place now, including automatic
Canada and then purchased by Reuters. It was the only software order processing, matching, trading, marks, interfaces to tri-party
option for international lending and borrowing at that time, apart from agents and so on.
firms writing and maintaining their own systems.
The improvement in technology allowed a much greater volume to
We were so busy selling and installing Global One in the US, Europe be processed without adding staff. General collateral loans are pretty
and Asia for the years from 1992 until after 2001, when we became well automatically processed now, leaving the traders to concentrate
part of SunGard, that there wasn’t much time to reflect on what we had on specials and arbitrage positions. As previously mentioned,
achieved. However, I did sell 12 copies of Global One to a consortium in securities finance is still a relationship business—more so than the
Kuala Lumpur, Malaysia, against a competitive system in 1996. We had repo market—although this is changing as well, as those with the
teams from K-Tek going out and installing the systems, only to have expertise and knowledge leave the market after many years.
the market crash in Asia within three months and Malaysia ban stock
lending! The market is now just coming back—slowly—to stock loan What changes do you expect to see in the securities
once again, after more than 20 years. lending industry over the coming years?

You developed Global One as an international It’s definitely going towards even further automation, with the
securities lending system where K-Tek worked closely increasing use of robotics, artificial intelligence and so on which will
with London Global Securities with first clients going reduce the requirement for human decisions, in cases where they can
live in 1992. Those clients from 1992 are still using be made by software.
Global One today, why do you think this is?
The other changes that have come about over the last 10 years,
Basically, Global One does ‘what it says on the tin’, and in most cases and are constantly a growing burden, are the regulatory reporting
has been incorporated into internal and external associated systems and capital requirements, such as Agent Lender Disclosure,
by many of the clients. Most brokers want to have their own front- Basel I, II and III and now the Securities Financing Transactions
end software, to provide their traders with a unique advantage, but Reporting initiative which will have a huge impact on Securities
are not bothered about the day to day processing or the settlement Finance processing and profit margins.
of the trades, so were happy to see Global One as the engine that
managed the middle and back end. Additionally, it is very robust, In my experience, the industry has lost a lot of what made it
many clients post millions of activities a day onto Global One and unique, as it was previously very much a niche and relationship
have many hundreds of thousands of outstanding borrows and business. I feel that is a great shame to those of us who have
loans. We recently had a client who had posted more than a billion worked in, and really enjoyed, the securities finance business,
transactions since installing the system. over the past 30-plus years.

www.securitieslendingtimes.com 25
Time for a rethink?
David Lewis of FIS discusses the dip in the securities finance industry’s global
revenues and explains the factors changing the dynamics of the industry
2018 was a good year for the securities finance industry, with dramatic impact, but there are also other forces at work. Regulatory
global revenues of $10 billion coming from record balances and issues are being blamed by some, as the demands and costs of
activity. Unfortunately, sometimes there is only one way to go when compliance with Securities Finance Transaction Regulation (SFTR,
you are at the top, and that is down. 2019 has not started well, at coming into effect in April 2020) and risks of settlement fines from
least in comparison to 2018, with volumes dropping through the Central Securities Depository Regulation (CSDR), for example, push
first quarter and revenues down around 10 percent in the second those on the periphery of the market to leave.
compared with recent years. But is this just the industry taking a
breather before pushing further upward, or could it be a sign of However, these effects, should they come about, will affect the supply
something more fundamental? side of the market more than the demand side. At present, a lack of
supply is not the problem—quite the opposite in fact, so looking to
With half my career spent as an agent lender, the mantra that you repeal or reduce regulation is not the answer. Supply in the market
cannot create demand to borrow securities, only make yourself has increased substantially over recent years as more funds look to
an attractive lenders has never been more appropriate. Borrowing securities lending to increase returns and/or mitigate their costs, such
demand is certainly down, and there are potentially many reasons for as those exchange-traded funds (ETF) providers and asset managers
this. In Europe, the fall of the yield enhancement (or dividend arbitrage launching zero management fee funds. The simple laws of supply
to give it its old, pre-health and safety name) trade will have had a and demand dictate that this increase, in and of itself, will lead to a

26 Securities Lending Times

 Data Analysis

slimming of the slice of the revenue pie for individual funds, if not a elsewhere. The need to re-rate is understandable; the agents are
reduction in the total pie overall. employed to make the most revenue they can for their lending
clients, but the prime brokers also need to be paid for their credit
The gross revenue across the market is, instead, falling from a intermediation, so rate hikes get passed on. The requirement for a
lack of demand, which the beneficial owners and their agents are solution has driven innovation in peer-to-peer lending and enhanced
relatively powerless to change. Part of that change can be blamed custody offerings, employing a provider’s own assets, or looking
on the characteristics of the lending market driving demand away, across their own client base rather than borrowing from ‘the street,’
and some on the change in the profile and behaviours of the end which, of course, brings the net borrowing demand down across the
user, hedge funds and alternative asset managers. A bias towards traditional transaction chain.
long positions is arguably a cyclical effect; there may be other, less
cyclical and more systemic changes at play, combining to reduce In this respect, it may be possible to point the finger at regulations.
borrowing demands. The second Markets in Financial Instruments Directive has driven
the search for ‘best execution’ across many markets, and the
A move to synthetics is one argument, with hedge funds looking to requirement to prove that transactions have been undertaken
other trade structures that might offer the same economic results, at the best possible rate has certainly impacted the securities
but some of these still rely on someone in the chain borrowing or finance market. Unfortunately, one aspect of this has been the
lending the underlying security as a hedge, therefore exposing the reliance on a simple measure of what best execution really means.
counterparties to the changing borrowing costs, and therein lies the In many markets, where a trade is enacted, it is simply the strike
rub. At FIS, our engagement with hedge funds and alternative asset price, evidenced as being at the published ‘market rate,’ whereas
managers, as some prefer to be called, has increased dramatically over a securities finance transaction lasting weeks or months is not so
recent years. It is often said that a measure of your own age is how easily measured. Applying the best rate as a benchmark drives all
young police officers look; in the finance industry it seems to me that parties to re-rate up and down as the market moves, but, as discussed
should be just as applicable to hedge fund managers, some of whom above, this may be part of why demand is falling. Lower net revenues
have never worn a tie, or perhaps even long-sleeved shirts. Something for beneficial owners cannot be construed by any observer as best
else that appears foreign to them is the reliance of relationships when execution, particularly as some funds which need lending revenues
it comes to trading. to pay their management fees may well lend under the market to
secure those revenues, bringing a whole new layer of best execution
Many systemic or quantitative funds have no traders at all; the job conflicts into play.
description simply doesn’t exist. A machine, working on parameters
and data feeds, transacts with the market; such machines care little Automation of our market, with advanced matching of borrowers’
for relationships and they are not something that can be factored into needs to lenders’ capacities, will help maintain returns as efficiencies
the decision process. The analysts and quants driving such strategies rise and costs fall. But this is not the whole story or the long-term
struggle with the idea that a transaction they made yesterday to answer; in the medium to long term, the structure of the market will
borrow a security at 1 percent, might cost them 10 percent today. With, need to change, moving to meet the changing demands of its end
say, a six-month trade in mind, they are driven to look for economic users, or accepting those changes and changing direction away to
certainty to feed their models. a more insular collateral management exchange-driven business.
Whatever the outcome, there are multiple factors at work changing
The securities lending markets struggle to cope with this demand, the dynamics of our industry—factors that require complex solutions
in certain circumstances at least, driving the end users to look and a capacity for change.

Automation of our market, with

advanced matching of borrowers’
needs to lenders’ capacities,
will help maintain returns as
efficiencies rise and costs fall David Lewis
Senior director
FIS

www.securitieslendingtimes.com 27
Don’t miss the next issue of SLT
SLT is present at all of the major securities lending conferences
around the world. Make sure you pick up a copy of the latest issue

Finadium Investors in Securities Lending International Collateral Management Forum

Conference Paris
Paris Vienna

September 2019 September 2019

24 26-27

The SFTR Implementation Forum 3rd Edition Impact of SFTR on Securities

Lending and Reporting Conference
London London

October 2019 November 2019

02 09
 Industry Appointments

Comings and goings at Traiana, Natixis and more

Joanna Davies has been appointed as CEO Currently, NEX is owned by Chicago Mercantile Simone Broadfield has joined J.P. Morgan
of Traiana. Exchange (CME). as the Asia Pacific (APAC) head of agency
securities lending trading.
Davies also currently serves as CEO of NEX Natixis has promoted Simon Sourigon to
Regulatory Reporting. executive director, head of global securities Most recently, Broadfield served as APAC head
financing Americas/global head of security of agency securities lending at BNP Paribas
Traiana is part of NEX Optimisation, a business line optimisation, based in New York. Securities Services. She also served in roles at
within NEX Group, which offers a portfolio of cloud Citi and Deutsche Bank.
hosted services across the transaction lifecycle. Most recently, Sourigon served as executive
director, global head of security optimisation, Alan Lawrence has departed Fidessa as buy-
Before this, Davies was managing director based in Paris. Prior to this, he served as side director.
at Traiana, and prior to this she served as a global head of equity collateral trading and
consultant on regulatory reform at UBS. before that, equity finance trader. Lawrence served at Fidessa for over 19
years and held various roles including head
of market access development for Fidessa’s
sell-side business, and was a member of Core
Development’s senior management team.

Lawrence is set to join Google as a site reliability

manager in September, based in London.

Grant Davies has left Matchbox as head of

business development, it has been confirmed.

Launched and active since August 2015,

Matchbox is an equity total return swaps
(TRS) platform built to automate the
execution and lifecycle management of long
and short TRS baskets.

Prior to Matchbox, Davies served at CORE

Collateral as partner.

Davies also worked at iShares as head of client

execution sales for Europe, the Middle East
and Africa. In addition, Davies is a Securities
Finance Charity Spring Ball board member,
an organisation set up to raise money for a
number of local charities.

Clearstream has appointed Jean-Robert Wilkin

as executive director of banking, funding and
financing, head of business development.
Donia Rouigueb promoted at CACEIS
Wilkin has been at Clearstream since 1993.
Donia Rouigueb has been promoted to and general investment management.
head of sales, securities finance and repo In his last role, Wilkin served as executive
at CACEIS. Additionally, Dan Copin has been director, global funding and financing, head
promoted to group head of securities of market development and previously
Meanwhile, Aude Martin has been finance and repo at CACEIS as executive director of global securities
promoted to investment specialist at legal Bank, Luxembourg. financing, head of product management.

www.securitieslendingtimes.com 29
Industry Appointments

As executive director of global securities financing, Rick McVey, MarketAxess chairman and CEO, Prager commented: “MarketAxess has been
he was responsible for collateral management commented: “Richard Prager is well known an important catalyst in the accelerating
services, securities lending and borrowing services for his industry leadership in developing and transformation of global fixed income markets.
fixed-income securities, equities, investment supporting innovative liquidity solutions in the
funds and projects in over-the-counter derivatives global fixed income markets.” Marcus Rudler has departed Citi as director
and bank loans (credit claims). of Europe, the Middle East and Africa, head
“Few people in our industry have his breadth of of equity agency securities lending trading,
Anthony Venditti has retired from his role knowledge and experience in the entire front to sources have confirmed.
as managing director, co-head global prime back trading lifecycle. He is passionate about
finance and Delta 1 Trading, at BMO Global technology solutions to improve efficiency Prior to Citi, Rudler served as vice
Capital Markets, effective 19 July. in fixed income trading and settlements. Our president of JPMorgan Chase and before
company will benefit greatly from his perspective this, he worked at BlackRock as senior
Venditti served at BMO Global Capital Markets and expertise as we continue to invest in the next securities lending trader.
for over 13 years between roles, including generation of electronic trading capabilities and
president of Paloma securities and co-head of expand our global presence.” Citi declined to comment.
BMO’s GPF and Delta 1 trading business

In total, Venditti has over 35 years of experience

in the securities industry, and he spent 10 of
those years at Nomura Securities.

At Nomura Securities, he held roles,

including global head of equity finance in
London where he also had responsibility for
the structured equity group.

Additionally, he was also head of Nomura’s US

equity sales business in New York.

Meanwhile, Jordan Lupu will take on Venditti’s role.

Venditti said: “I will particularly miss the

people who I have worked closely with over
the years and the fun we had around creating/
launching new products, and making our
clients/counterparts feel so special.”

MarketAxess board of directors has elected

Richard Prager, a former senior managing
director of BlackRock, who led the firm’s global
trading, liquidity and securities lending teams.
James Slater appointed global head of
Prager served on BlackRock’s global business solutions
executive committee and played a
leadership role in managing BlackRock’s BNY Mellon has appointed James Slater BNY Mellon Markets and global head of
global investment platform. as global head of business solutions for securities finance, segregation and liquidity.
asset servicing.
He retired from BlackRock on July 1 2019. Prior to that, he held roles including managing
Slater will report to Hani Kablawi, chief director, head of securities finance, liquidity
Prior to joining BlackRock in 2009, Prager executive of the bank’s asset servicing group. and collateral segregation.
worked for Bank of America in several senior
management roles, including global head of Slater has worked at BNY Mellon for nine He also worked at CIBC Mellon between
rates, currencies and commodities. years, most recently he was co-head of 1996 and 2010.

30 Securities Lending Times

 THIRD ANNUAL

SEPTEMBER 24, 2019 | PARIS, FRANCE

The Leading Event for Investors

on Opportunities and Challenges
in Securities Finance

fina dium.c o m