Unlocking new levels of efficiency
30 April 2024
Justin Lawson catches up with Wematch’s co-founders David Raccat and Joseph Seroussi on how the firm’s collaboration with Eurex will drive innovation in synthetic securities finance, and the company’s long-term vision for the industry
Image: stock.adobe/Andrew Derr
What do you note as the most pressing and current issues facing the securities finance industry?
One of the key challenges we see is the growing need for multiple liquidity channels and alternative platforms, products and venues on securities lending. This is especially critical given the increasing pressure on the sell side to move from physical to synthetic financing due to Basel III risk-weighted assets (RWA) and capital charges, accelerating synergies between physical securities lending and synthetic structures. Another pressing issue is the development of robust pre-trade tools to better optimise trading and inventory allocation.
Regulators are increasingly focusing on transparency and risk management in the securities financing market. How can technology help firms navigate this evolving regulatory landscape?
Our Data & Contribution service helps firms to meet the Fundamental Review of the Trading Book (FRTB) data requirements by providing real, tradable price observations, to pass the Risk Factor Eligibility Test. The service creates a total return swap (TRS) curve, and provides historical and observable data to help with marking books in an opaque OTC market. Working with a data partner like Wematch reduces the time to be FRTB-compliant, with a current run rate of 10,000 quotes received yearly, and more than 700 mids already created. We are soon extending the scope to securities lending with upgrades and downgrades.
Wematch’s ongoing notional volume has recently reached a record US$320 billion. To what do you attribute this success, and how does your platform differentiate itself in the market?
Our platform was revamped in 2022 to manage much larger volumes and industrialise the business. We have expanded from niche markets into general collateral flows, which are very volume-intensive. Key differentiators include a powerful collateral optimiser, seamless connectivity and integration, and continuous client-driven innovation on a modern, agile technology stack. We have identified strong growth in securities lending and in the US market, compared to the more mature European TRS market. Our focus is on capturing additional flows in the US and APAC regions for both TRS and securities lending.
It took us less than four years to reach US$100 billion in ongoing notional, two years to grow from US$100 billion to US$200 billion, and just six months to transition from US$200 billion to US$300 billion. This accelerating growth rate is a testament to the value our clients see in our platform and the trust they place in us.
We attribute this success to a few key factors. First, our commitment to innovation — we are constantly pushing the boundaries of what is possible in securities finance, whether it is through our optimisation tools, our expansion into new markets and products, or our strategic partnerships with industry players such as Eurex.
Second, our client-centric approach. Everything we do is driven by a deep understanding of our clients’ needs and pain points. We work closely with them to develop solutions that streamline their workflows, reduce their risks, and enhance their profitability. This collaborative approach has helped us build strong, long-lasting relationships with our clients and partners.
Finally, we have very dedicated teams working to make Wematch the go-to platform for securities finance. Their expertise, passion and dedication are the driving force behind our success.
In 2023, Wematch launched several tools. Can you explain how these solutions are helping to revolutionise post-trade processes and your plans for 2024?
The FRM Optimiser is designed to transform financial resource management for banks by simplifying and optimising the recall and substitution process for securities-based lending financing trades. It provides a central marketplace, enhanced trade capture, lifecycle management tools, and a user-rule-driven optimisation tool, ensuring optimal inventory allocation and improved balance sheet management.
The TRS Cash Flow Manager streamlines and automates cash flow management for total return swaps. By leveraging trade data from our TRS modules and corporate actions data, it calculates cash flows. Our Trade Sync feature automates reconciliation, reducing breaks and increasing efficiency.
The Data & Contribution service addresses data challenges in the TRS market, particularly for regulatory requirements such as FRTB. It aims to provide transparent data sharing, enhancing price transparency and standardisation of TRS funding curves. Participants contribute prices, access historical data, and receive customisable reports, therefore improving accuracy and efficiency.
In 2024, we plan to extend the Data & Contribution service globally, introduce digital ISDA confirmations, and enhance the TRS Cash Flow Manager.
Our goal is to be a comprehensive one-stop shop for TRS, and to provide the market with a matching platform on securities lending, revolutionising post-trade processes and becoming the go-to provider for securities finance market participants, who seek to optimise workflows, reduce risks, and enhance capital efficiency.
AI and machine learning are increasingly being applied to securities finance. What potential do you see for these technologies, and how is Wematch incorporating them into its platform?
We recognise the immense potential of AI and machine learning in revolutionising the securities finance industry. As part of our long-term roadmap, we are investing in research and development to responsibly harness these cutting-edge technologies, while maintaining the highest standards of security, privacy, and regulatory compliance.
Our goal is to gradually incorporate AI and machine learning capabilities into our platform, ensuring they complement and enhance our existing offerings. We will keep our clients informed and work closely with them to address their specific requirements and concerns as we make progress in this area.
Wematch recently partnered with Eurex to drive innovation in synthetic securities finance through Basket Total Return Futures (bTRFs). Can you share more details about this collaboration?
Our Eurex partnership, set for a Q3 2024 launch, will enable interoperability between Wematch's TRS module and Eurex's bTRF products. Wematch will provide the GUI for participants to input interests, match trades, and update digital portfolios in real-time via API, allowing for listed bTRF trading alongside OTC TRS.
This collaboration aims to revolutionise the complete end-to-end workflow for bTRF market participants, from basket construction and pricing to trade execution, lifecycle events, and streamlined clearing and settlement. The seamless harmonisation between the two platforms will unlock new levels of efficiency, standardisation, reduced counterparty risk, cash flow management, and capital optimisation for market participants.
The partnership will roll out in strategic phases, with full integration across pricing, execution, and lifecycle management targeted for Q3 2024.
What are your thoughts on DLT and smart contracts, and how do you see these shaping the future of securities finance?
We believe distributed ledger technology (DLT) has immense potential to transform collateral management. Wematch has partnered with HQLAX, Ownera and J.P. Morgan, for repo execution with delivery-versus-payment (DVP) settlement across two different distributed ledgers. DLT can help solve settlement issues and maximise collateral velocity using tokenised securities and digital cash on private blockchains. We have completed all developments to be part of the DLT repo workflow and are eager to see the first trades go through.
Looking ahead, what is your long-term vision for the securities finance industry, and how do you see Wematch contributing to this evolution over the next five to 10 years?
We emphasise the importance of interoperability and a cross-product solution that allows clients to optimise workflows, collateral, and inventory across securities lending, TRS, and bTRFs. Our vision is to become product-agnostic and offer a single-provider solution for maximum efficiency.
Wematch prioritises the development of DLT solutions and plans to release an interoperable solution in late 2024. Wematch envisions a future of accelerated digital efficiency, connecting market participants across asset classes on modern, agile platforms.
We will continue to expand our TRS, securities lending, and financing offerings globally, bringing automation, optimisation and innovation. Wematch is committed to accomplishing its plan of providing market participants with a full suite of securities finance solutions, encompassing securities lending, TRS, bTRFs, and other innovative products. By offering a comprehensive, integrated platform, Wematch aims to become the go-to provider for securities finance market participants seeking to optimise their workflows, reduce operational risks, and enhance capital efficiency.
One of the key challenges we see is the growing need for multiple liquidity channels and alternative platforms, products and venues on securities lending. This is especially critical given the increasing pressure on the sell side to move from physical to synthetic financing due to Basel III risk-weighted assets (RWA) and capital charges, accelerating synergies between physical securities lending and synthetic structures. Another pressing issue is the development of robust pre-trade tools to better optimise trading and inventory allocation.
Regulators are increasingly focusing on transparency and risk management in the securities financing market. How can technology help firms navigate this evolving regulatory landscape?
Our Data & Contribution service helps firms to meet the Fundamental Review of the Trading Book (FRTB) data requirements by providing real, tradable price observations, to pass the Risk Factor Eligibility Test. The service creates a total return swap (TRS) curve, and provides historical and observable data to help with marking books in an opaque OTC market. Working with a data partner like Wematch reduces the time to be FRTB-compliant, with a current run rate of 10,000 quotes received yearly, and more than 700 mids already created. We are soon extending the scope to securities lending with upgrades and downgrades.
Wematch’s ongoing notional volume has recently reached a record US$320 billion. To what do you attribute this success, and how does your platform differentiate itself in the market?
Our platform was revamped in 2022 to manage much larger volumes and industrialise the business. We have expanded from niche markets into general collateral flows, which are very volume-intensive. Key differentiators include a powerful collateral optimiser, seamless connectivity and integration, and continuous client-driven innovation on a modern, agile technology stack. We have identified strong growth in securities lending and in the US market, compared to the more mature European TRS market. Our focus is on capturing additional flows in the US and APAC regions for both TRS and securities lending.
It took us less than four years to reach US$100 billion in ongoing notional, two years to grow from US$100 billion to US$200 billion, and just six months to transition from US$200 billion to US$300 billion. This accelerating growth rate is a testament to the value our clients see in our platform and the trust they place in us.
We attribute this success to a few key factors. First, our commitment to innovation — we are constantly pushing the boundaries of what is possible in securities finance, whether it is through our optimisation tools, our expansion into new markets and products, or our strategic partnerships with industry players such as Eurex.
Second, our client-centric approach. Everything we do is driven by a deep understanding of our clients’ needs and pain points. We work closely with them to develop solutions that streamline their workflows, reduce their risks, and enhance their profitability. This collaborative approach has helped us build strong, long-lasting relationships with our clients and partners.
Finally, we have very dedicated teams working to make Wematch the go-to platform for securities finance. Their expertise, passion and dedication are the driving force behind our success.
In 2023, Wematch launched several tools. Can you explain how these solutions are helping to revolutionise post-trade processes and your plans for 2024?
The FRM Optimiser is designed to transform financial resource management for banks by simplifying and optimising the recall and substitution process for securities-based lending financing trades. It provides a central marketplace, enhanced trade capture, lifecycle management tools, and a user-rule-driven optimisation tool, ensuring optimal inventory allocation and improved balance sheet management.
The TRS Cash Flow Manager streamlines and automates cash flow management for total return swaps. By leveraging trade data from our TRS modules and corporate actions data, it calculates cash flows. Our Trade Sync feature automates reconciliation, reducing breaks and increasing efficiency.
The Data & Contribution service addresses data challenges in the TRS market, particularly for regulatory requirements such as FRTB. It aims to provide transparent data sharing, enhancing price transparency and standardisation of TRS funding curves. Participants contribute prices, access historical data, and receive customisable reports, therefore improving accuracy and efficiency.
In 2024, we plan to extend the Data & Contribution service globally, introduce digital ISDA confirmations, and enhance the TRS Cash Flow Manager.
Our goal is to be a comprehensive one-stop shop for TRS, and to provide the market with a matching platform on securities lending, revolutionising post-trade processes and becoming the go-to provider for securities finance market participants, who seek to optimise workflows, reduce risks, and enhance capital efficiency.
AI and machine learning are increasingly being applied to securities finance. What potential do you see for these technologies, and how is Wematch incorporating them into its platform?
We recognise the immense potential of AI and machine learning in revolutionising the securities finance industry. As part of our long-term roadmap, we are investing in research and development to responsibly harness these cutting-edge technologies, while maintaining the highest standards of security, privacy, and regulatory compliance.
Our goal is to gradually incorporate AI and machine learning capabilities into our platform, ensuring they complement and enhance our existing offerings. We will keep our clients informed and work closely with them to address their specific requirements and concerns as we make progress in this area.
Wematch recently partnered with Eurex to drive innovation in synthetic securities finance through Basket Total Return Futures (bTRFs). Can you share more details about this collaboration?
Our Eurex partnership, set for a Q3 2024 launch, will enable interoperability between Wematch's TRS module and Eurex's bTRF products. Wematch will provide the GUI for participants to input interests, match trades, and update digital portfolios in real-time via API, allowing for listed bTRF trading alongside OTC TRS.
This collaboration aims to revolutionise the complete end-to-end workflow for bTRF market participants, from basket construction and pricing to trade execution, lifecycle events, and streamlined clearing and settlement. The seamless harmonisation between the two platforms will unlock new levels of efficiency, standardisation, reduced counterparty risk, cash flow management, and capital optimisation for market participants.
The partnership will roll out in strategic phases, with full integration across pricing, execution, and lifecycle management targeted for Q3 2024.
What are your thoughts on DLT and smart contracts, and how do you see these shaping the future of securities finance?
We believe distributed ledger technology (DLT) has immense potential to transform collateral management. Wematch has partnered with HQLAX, Ownera and J.P. Morgan, for repo execution with delivery-versus-payment (DVP) settlement across two different distributed ledgers. DLT can help solve settlement issues and maximise collateral velocity using tokenised securities and digital cash on private blockchains. We have completed all developments to be part of the DLT repo workflow and are eager to see the first trades go through.
Looking ahead, what is your long-term vision for the securities finance industry, and how do you see Wematch contributing to this evolution over the next five to 10 years?
We emphasise the importance of interoperability and a cross-product solution that allows clients to optimise workflows, collateral, and inventory across securities lending, TRS, and bTRFs. Our vision is to become product-agnostic and offer a single-provider solution for maximum efficiency.
Wematch prioritises the development of DLT solutions and plans to release an interoperable solution in late 2024. Wematch envisions a future of accelerated digital efficiency, connecting market participants across asset classes on modern, agile platforms.
We will continue to expand our TRS, securities lending, and financing offerings globally, bringing automation, optimisation and innovation. Wematch is committed to accomplishing its plan of providing market participants with a full suite of securities finance solutions, encompassing securities lending, TRS, bTRFs, and other innovative products. By offering a comprehensive, integrated platform, Wematch aims to become the go-to provider for securities finance market participants seeking to optimise their workflows, reduce operational risks, and enhance capital efficiency.
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