Impetus for change
27 September 2016
The rules of the game have changed. Industry participants need to adapt to survive. Stonewain’s Armeet Sandhu explains
Image: Shutterstock
The securities finance landscape has changed quite dramatically over the years. The impetus behind these changes can be attributed to various factors, including regulatory requirements, revenue compression, and industry innovation.
Due to the larger macro impact of regulation, our industry is forced to do more with less, which in turn has had an impact on all aspects of securities finance. Restricted budgeting models have had an obvious effect on staffing strategies and requirements. Industry is forced to come up with creative solutions to to accommodate these changes in an increasingly complex operating environment.
Manifestation of change
This continually evolving and challenging environment has elicited a shift in the manner in which businesses operate. Institutions are required to adopt a much more strategic approach to their business activity by modifying their trading strategies, selectively targeting new clients, and optimising institutional balance sheet usage to support existing clients.
Some firms have invested well in optimising their resource utilisation. Such firms are at the head of the industry in this regard, utilising an optimal client mix to fit with firm’s strategies and deploying internal processes that maximise return on balance sheet usage in a holistic manner. We are also seeing new entrants in the space created by compression of services historically provided by the leaders. There continues to be discussions and movements towards the opening of new routes to market such as peer-to-peer lending or non-indemnified lending by beneficial owners.
Innovations in the industry are also bringing forth significant changes to the securities finance landscape, such as through the perpetual evolution of automated lending and borrowing. This has evolved from basic transaction initiation to complex rules-based engines for not only the borrowing and lending of securities, but also for straight-through processing and/or trade settlement. The evolution of central counterparties (CCPs) is another area of innovation and the development of efficient CCPs provides opportunities for all participants.
Transformational technology
The widespread strategic modifications driven by the changing securities finance landscape has increased the importance and value of robust and flexible technology. Technology is instrumental in providing visibility and analytical tools to determine which clients and trading strategies are most profitable. Technology is also crucial to gaining efficiencies in communication with other vendors, industry utilities such as CCPs and pre/post-trade services, and other firms. Additionally, a current and well-built technology platform enables effective resource allocation to focus on exception based issues and problem solving, rather than routine tasks.
Íø±¬³Ô¹Ï finance technology
The current terrain of securities finance technology is comprised of quite a few long-established services. Overall, the industry utilities like EquiLend and Pirum are reacting to industry needs by providing new and enhanced services.
However, there is a drop-off in the pace of change in technology utilised by the industry to interact with the utilities. This mismatch prevents the full realisation of the potential benefits from both industry and technology innovation.
Institutions with significant internal technology face the traditional dilemma of investing in internal development (whether module-based development to existing platforms or completely brand new development). This investment has significant associated costs, or solutioning through IT providers. Firms with deep pockets and large internal IT staff can afford in-house development to gain an advantage by keeping pace or leading the innovation.
On the other hand, there are firms that do not have resources available and are required to look for vendor-provided solutions. However, if the vendors are unwilling or unable to provide comparable technology then at what point does this become a problem for the overall securities finance arena? Inevitably, there should be a balance between the two that will allow for a healthy securities finance topography.
Access to technology solutions
The goal is to provide access to required and needed technology across the spectrum to current and new participants. The benefits will be high quality trading partners with robust capabilities, lowering of overall industry spend on tech while preserving resources to focus on innovating. The realisation of these goals will attract new market participants, create participant diversity, and enable response to regulatory needs, such as single counter party limits or the Íø±¬³Ô¹Ï Financing Transaction Regulation.
Stonewain’s Spire platform provides a robust, capable and affordable platform to the industry; ensuring wide access to a exceptional technology solution for all participants in the industry. We feel that cutting edge solutions like Spire in conjunction with the services from the utility vendors, will create a better business and operating environment for the entire industry. Otherwise the mismatch of capabilities of various participants will create a drag on industry growth and innovation.
We see that the time for change is here. Old and antiquated solutions can no longer be patched and hacked to support constantly evolving needs. The pace and scope of change is too large and the ability to create robust and fail-proof solutions using old systems is no longer possible. The older solutions were created in a much simpler business environment and were able to evolve and keep up during periods of slow change. Now, we operate—and will continue to operate for the foreseeable future—in a dynamic and rapidly changing environment. There is a strong need for solutions that are agile and developed to be nimble and open. Change is the only constant—you need your technology solutions to do the same.
At Stonewain we have addressed this challenge by creating Spire, a modern, complete, easy-to-use solution that is constantly evolving to address industry needs. Spire provides out of box integrations with industry utilities, software-as-a-service and turnkey operations. The solution includes pricing algorithms and optimisation engines to enable automation of trading decisions, execution and maintenance. Accounting engine, analytics and reporting enable opportunity discovery and true macro/micro profitability views. All of this is supported by a true straight-through processing engine that empowers users to focus on exceptions and architecting complex solutions. Key data elements are captured, preserved and accessible easily enabling true transparency for internal oversight, clients and regulators.
Due to the larger macro impact of regulation, our industry is forced to do more with less, which in turn has had an impact on all aspects of securities finance. Restricted budgeting models have had an obvious effect on staffing strategies and requirements. Industry is forced to come up with creative solutions to to accommodate these changes in an increasingly complex operating environment.
Manifestation of change
This continually evolving and challenging environment has elicited a shift in the manner in which businesses operate. Institutions are required to adopt a much more strategic approach to their business activity by modifying their trading strategies, selectively targeting new clients, and optimising institutional balance sheet usage to support existing clients.
Some firms have invested well in optimising their resource utilisation. Such firms are at the head of the industry in this regard, utilising an optimal client mix to fit with firm’s strategies and deploying internal processes that maximise return on balance sheet usage in a holistic manner. We are also seeing new entrants in the space created by compression of services historically provided by the leaders. There continues to be discussions and movements towards the opening of new routes to market such as peer-to-peer lending or non-indemnified lending by beneficial owners.
Innovations in the industry are also bringing forth significant changes to the securities finance landscape, such as through the perpetual evolution of automated lending and borrowing. This has evolved from basic transaction initiation to complex rules-based engines for not only the borrowing and lending of securities, but also for straight-through processing and/or trade settlement. The evolution of central counterparties (CCPs) is another area of innovation and the development of efficient CCPs provides opportunities for all participants.
Transformational technology
The widespread strategic modifications driven by the changing securities finance landscape has increased the importance and value of robust and flexible technology. Technology is instrumental in providing visibility and analytical tools to determine which clients and trading strategies are most profitable. Technology is also crucial to gaining efficiencies in communication with other vendors, industry utilities such as CCPs and pre/post-trade services, and other firms. Additionally, a current and well-built technology platform enables effective resource allocation to focus on exception based issues and problem solving, rather than routine tasks.
Íø±¬³Ô¹Ï finance technology
The current terrain of securities finance technology is comprised of quite a few long-established services. Overall, the industry utilities like EquiLend and Pirum are reacting to industry needs by providing new and enhanced services.
However, there is a drop-off in the pace of change in technology utilised by the industry to interact with the utilities. This mismatch prevents the full realisation of the potential benefits from both industry and technology innovation.
Institutions with significant internal technology face the traditional dilemma of investing in internal development (whether module-based development to existing platforms or completely brand new development). This investment has significant associated costs, or solutioning through IT providers. Firms with deep pockets and large internal IT staff can afford in-house development to gain an advantage by keeping pace or leading the innovation.
On the other hand, there are firms that do not have resources available and are required to look for vendor-provided solutions. However, if the vendors are unwilling or unable to provide comparable technology then at what point does this become a problem for the overall securities finance arena? Inevitably, there should be a balance between the two that will allow for a healthy securities finance topography.
Access to technology solutions
The goal is to provide access to required and needed technology across the spectrum to current and new participants. The benefits will be high quality trading partners with robust capabilities, lowering of overall industry spend on tech while preserving resources to focus on innovating. The realisation of these goals will attract new market participants, create participant diversity, and enable response to regulatory needs, such as single counter party limits or the Íø±¬³Ô¹Ï Financing Transaction Regulation.
Stonewain’s Spire platform provides a robust, capable and affordable platform to the industry; ensuring wide access to a exceptional technology solution for all participants in the industry. We feel that cutting edge solutions like Spire in conjunction with the services from the utility vendors, will create a better business and operating environment for the entire industry. Otherwise the mismatch of capabilities of various participants will create a drag on industry growth and innovation.
We see that the time for change is here. Old and antiquated solutions can no longer be patched and hacked to support constantly evolving needs. The pace and scope of change is too large and the ability to create robust and fail-proof solutions using old systems is no longer possible. The older solutions were created in a much simpler business environment and were able to evolve and keep up during periods of slow change. Now, we operate—and will continue to operate for the foreseeable future—in a dynamic and rapidly changing environment. There is a strong need for solutions that are agile and developed to be nimble and open. Change is the only constant—you need your technology solutions to do the same.
At Stonewain we have addressed this challenge by creating Spire, a modern, complete, easy-to-use solution that is constantly evolving to address industry needs. Spire provides out of box integrations with industry utilities, software-as-a-service and turnkey operations. The solution includes pricing algorithms and optimisation engines to enable automation of trading decisions, execution and maintenance. Accounting engine, analytics and reporting enable opportunity discovery and true macro/micro profitability views. All of this is supported by a true straight-through processing engine that empowers users to focus on exceptions and architecting complex solutions. Key data elements are captured, preserved and accessible easily enabling true transparency for internal oversight, clients and regulators.
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