Accelerating into a digital future
24 May 2022
GLMX鈥檚 chief product officer Andy Wiblin observes that securities financing markets are entering a new phase of electronification, enabling complex flows that were previously locally optimised in spreadsheets now to be digitised
Image: stock.adobe.com/monsitj
The financial markets are evolving at an accelerating pace. At GLMX, we are privileged to observe this playing out within the securities financing and money markets. Indeed, at GLMX we are an active agent of change, helping firms adapt to new challenges.
One key observation we have made over the past six months is that a new phase of electronification in these markets has begun.
Progress to date
First, to recap. The initial evolutionary phase can be characterised as solving two challenges:
1. Flow automation: optimising high volume, repetitive, commoditised processes such as short-dated flow business or GC lending
2. Regulatory: coming from the second Markets in Financial Instruments Directive (MIFID II), the 网爆吃瓜 Financing Transactions Regulation (SFTR) and, more recently, the Central 网爆吃瓜 Depositories Regulation (CSDR).
A key component of this phase was to move the mechanics of negotiation from unstructured or semi-structured means of voice, instant messaging or email into structured form. This removed the manual effort of dual-keying and reduced the attendant operational risk. Success in this component has freed human capital to focus on their relationships, which allowed increased volumes to be managed without sacrificing the quality of the client experience. In many cases, relationships have been enhanced as parties have had more time to focus on discussing market colour and to review current and future needs.
We have witnessed how firms have invested in next generation technology to optimise this flow 鈥� covering both self-build and vendor-supplied aggregators, automated pricing infrastructure and API-connected order management systems (OMS) and execution management systems (EMS). We are also proud to work with our industry partners on projects to help reduce the friction of integration 鈥� the work done with the International Capital Market Association (ICMA) and the International 网爆吃瓜 Lending Association (ISLA) on the Common Domain Model (CDM) being a key part of this.
Entering a new phase
The investments made have now opened new and powerful horizons. Flow that was previously unmanageable in a manual world has rapidly become possible 鈥� for example financing a systematically traded credit portfolio. Such an effort requires the ability to communicate, price and negotiate, agree and book rapidly, and at scale, with minimal errors. This enables trading strategies that otherwise would not have been possible, either in totality or at the scale which makes them viable.
Complex flows that have been locally optimised in spreadsheets over the years have also now come into play. These flows were largely left untouched in the initial evolutionary phase. However, advances in platform capability and depth of integration into the wider technology ecosystem mean that these can now be digitised. This type of flow typically covers more than simple new trade initiation. It might cover a mix of events 鈥� opening new positions, closing or reducing existing positions, re-rating and substituting. As noted in the recent 网爆吃瓜 Finance Times article by GLMX COO Sal Giglio, 鈥淭aking the stress out of mid-life events鈥�, GLMX excels at managing this type of flow for our clients.
Finally, for the most advanced liquidity providers, the question turns to how to manage the long tail of lower-volume but diverse clients. In the earlier phase, the reward associated with onboarding this client type would not have been worth the effort. Now, the marginal cost of having these flows remain manual is increasing, and firms are pushing ever harder to transition this activity to platform and to bring them into the automation ecosystem. At GLMX, we have found that the key to helping our clients achieve this is our ability to offer the widest range of features, across the entire collateral universe, with the best possible user experience.
Moving beyond negotiation
As firms review what they have achieved to date, thoughts unsurprisingly have turned to what else can be digitised in the quest for further efficiency. Price discovery is a natural next step. Most liquidity providers are keen to leverage their established digital channels to distribute market colour and axes to their clients in a consistent, structured fashion. This helps clients better analyse how and where to direct their flow in the interest of accessing the best possible liquidity.
For other players in the space, the challenge of how to extend their coverage into adjacent asset classes which are further down the electronification curve is a natural attack point. Success in this effort will reap additional returns from initial automation investment, from normalisation and consolidation of what are currently separate flows, and from better cross-asset class contextual data. GLMX鈥檚 ongoing expansion of product coverage into securities lending and broader money markets is designed to support these needs.
The future is now
In summary, for a world in which there is increased market volatility, and the attendant challenges around managing volumes and increased complexity, it is ever more essential to have the best possible digital connectivity with counterparts. Within securities financing, this has moved from being a small part of an overall operation to being a vital component of the modern business. GLMX is proud to be at the forefront of this new phase.
The future is digital, and it has arrived.
One key observation we have made over the past six months is that a new phase of electronification in these markets has begun.
Progress to date
First, to recap. The initial evolutionary phase can be characterised as solving two challenges:
1. Flow automation: optimising high volume, repetitive, commoditised processes such as short-dated flow business or GC lending
2. Regulatory: coming from the second Markets in Financial Instruments Directive (MIFID II), the 网爆吃瓜 Financing Transactions Regulation (SFTR) and, more recently, the Central 网爆吃瓜 Depositories Regulation (CSDR).
A key component of this phase was to move the mechanics of negotiation from unstructured or semi-structured means of voice, instant messaging or email into structured form. This removed the manual effort of dual-keying and reduced the attendant operational risk. Success in this component has freed human capital to focus on their relationships, which allowed increased volumes to be managed without sacrificing the quality of the client experience. In many cases, relationships have been enhanced as parties have had more time to focus on discussing market colour and to review current and future needs.
We have witnessed how firms have invested in next generation technology to optimise this flow 鈥� covering both self-build and vendor-supplied aggregators, automated pricing infrastructure and API-connected order management systems (OMS) and execution management systems (EMS). We are also proud to work with our industry partners on projects to help reduce the friction of integration 鈥� the work done with the International Capital Market Association (ICMA) and the International 网爆吃瓜 Lending Association (ISLA) on the Common Domain Model (CDM) being a key part of this.
Entering a new phase
The investments made have now opened new and powerful horizons. Flow that was previously unmanageable in a manual world has rapidly become possible 鈥� for example financing a systematically traded credit portfolio. Such an effort requires the ability to communicate, price and negotiate, agree and book rapidly, and at scale, with minimal errors. This enables trading strategies that otherwise would not have been possible, either in totality or at the scale which makes them viable.
Complex flows that have been locally optimised in spreadsheets over the years have also now come into play. These flows were largely left untouched in the initial evolutionary phase. However, advances in platform capability and depth of integration into the wider technology ecosystem mean that these can now be digitised. This type of flow typically covers more than simple new trade initiation. It might cover a mix of events 鈥� opening new positions, closing or reducing existing positions, re-rating and substituting. As noted in the recent 网爆吃瓜 Finance Times article by GLMX COO Sal Giglio, 鈥淭aking the stress out of mid-life events鈥�, GLMX excels at managing this type of flow for our clients.
Finally, for the most advanced liquidity providers, the question turns to how to manage the long tail of lower-volume but diverse clients. In the earlier phase, the reward associated with onboarding this client type would not have been worth the effort. Now, the marginal cost of having these flows remain manual is increasing, and firms are pushing ever harder to transition this activity to platform and to bring them into the automation ecosystem. At GLMX, we have found that the key to helping our clients achieve this is our ability to offer the widest range of features, across the entire collateral universe, with the best possible user experience.
Moving beyond negotiation
As firms review what they have achieved to date, thoughts unsurprisingly have turned to what else can be digitised in the quest for further efficiency. Price discovery is a natural next step. Most liquidity providers are keen to leverage their established digital channels to distribute market colour and axes to their clients in a consistent, structured fashion. This helps clients better analyse how and where to direct their flow in the interest of accessing the best possible liquidity.
For other players in the space, the challenge of how to extend their coverage into adjacent asset classes which are further down the electronification curve is a natural attack point. Success in this effort will reap additional returns from initial automation investment, from normalisation and consolidation of what are currently separate flows, and from better cross-asset class contextual data. GLMX鈥檚 ongoing expansion of product coverage into securities lending and broader money markets is designed to support these needs.
The future is now
In summary, for a world in which there is increased market volatility, and the attendant challenges around managing volumes and increased complexity, it is ever more essential to have the best possible digital connectivity with counterparts. Within securities financing, this has moved from being a small part of an overall operation to being a vital component of the modern business. GLMX is proud to be at the forefront of this new phase.
The future is digital, and it has arrived.
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