MX Consulting’s new senior partner talks about her new role, and what she feels the securities lending industry needs to focus on
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SLT: Can you talk about your experience in the market?
Sarah Nicholson: I have worked for Aviva Investors and its predecessor companies for over 20 years. After working in most securities lending roles I spent six years heading up the UK business before becoming the global director of securities finance for the last five years. In this time I sourced and implemented new lending and risk systems as well as helped develop the global business covering all elements of financing including lending, derivative collateral and secured funding.
SLT: So what are you doing now?
Nicholson: I decided last year it was time for a change and, after handing the reins over to Mick Chadwick, left Aviva Investors in November. I have always been interested in the broader industry as a whole and I started working with ISLA almost immediately - looking at some of the issues the industry as a whole faces. I have been involved with ISLA for over 10 years as a board member and I am enjoying having the time and the opportunity to get more hand on in representing the industry. I have now also decided to join MX Consulting as a senior partner.
SLT: What made you join MX Consulting?
Nicholson: I have always enjoyed identifying opportunities, working out what is needed to seize them and developing solutions to implement them, so a role in consultancy has always held some attraction. I have known MX Consulting for a long time and I have always recognised their focus on providing strategic solutions, enabling businesses to manage growth and maximise opportunities. The MX team all have extensive experience and expertise from working in the securities finance industry rather than coming from a more generic background, which is perhaps more common for consultancy firms. This has meant that MX has been able to design and build large scale system solutions across the industry, for both buy and sell sides, enabling greater automation, cost efficiencies and links between different businesses within the same firm. Importantly for me, they can add an immediate and relevant perspective as well as tangible value very quickly.
SLT: What will you be focusing on?
Nicholson: I will be overseeing the business consultancy side of the business. As I said before MX has a wealth of experience which can help firms maximise their business model and meet the challenges ahead.
The level of regulation that is impacting now, or will impact in the next 18 months or so, is unprecedented, and I want to focus on helping businesses prepare and meet this challenge, as well as help identify any potential opportunities that this may offer. Regulatory harmonisation across Europe will ultimately be a good thing for the industry but the journey may be difficult.
Regulatory and compliance departments are already at full stretch and the nuances of securities finance means that impacts are not always obvious to non-practitioners/specialists - and just keeping up with the sheer volume of regulatory change is challenging - let alone finding cost effective solutions. Understanding the regulatory change and ensuring that the impacts on securities finance activity are identified early enough to ensure compliance is critical.
One of the biggest issues will be in producing data for capital and risk analysis, at the granular level the regulators require. MX has already developed some product based solutions in this area which can easily be configured to any agent’s programme or beneficial owners’ requirements. Businesses that are in good shape to meet the requirements of the regulators will be in a better position to identify and maximise opportunities as they arise.
SLT: What do you think the future holds for securities lending?
Nicholson: There are so many moving parts and uncertainties at the moment it is difficult to see how the industry will look in the future.
Understanding regulation and having the flexibility to meet the requirements is a must have whilst keeping costs down, but businesses also need to keep focused on growth and development.
The lines between securities finance and other investment strategies are fading and the disciplines ingrained in lending are in high demand in other areas. Regulation and difficult market conditions means that the demand for collateralisation is only going to continue to increase. This in turn drives the need for optimisation and efficient inventory management and financing skills.
With the buy-side now also focusing more on balance sheet considerations and risk management techniques, securities finance will increasingly be seen as of strategic importance in managing risk and generating all important additional yields. I think you will see more focus on specific transactions rather than flow business, especially as investors adjust their portfolios to become more capital efficient.
There are opportunities for lending desks to further align their businesses to the client needs and add real value but only if they can understand the changing landscape and their clients’ changing needs.
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