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The primary source of global securities finance news and analysis Issue 287 28 September 2021
GLMX: where
technology and
liquidity converge
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A Bespoke Technology Solution
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Business Needs
SFT_Front_cover_strip_Eq_Spire .indd 1 8/2/21 4:40 PM
Lead Story
3
Securities lending associations establish working group
for global collaboration
Five trade associations representing the They indicate that all recognised securities regulators, financial infrastructure entities and
securities lending industry have established a lending associations, and other financial standard-setting bodies worldwide.
working group to collaborate on priority issues market associations with an interest in
in global lending. securities lending, are welcome to join the One of its initial projects is to create a library
group, which will convene quarterly through of ESG resources that will bring together the
This includes ESG integration and ongoing virtual meetings. work conducted by the individual member
efforts to promote the benefits of regulated associations. It will develop ESG guidelines and
and transparent short-selling to liquid and The group first met in July and will build on thought leadership around stewardship, voting
sustainable capital markets. the momentum generated in developing the rights, collateral and transparency, taking into
Global Framework for ESG and Securities account that regulation of sustainable finance
The founding members of this working Lending (GFESL), which was published in and market practice are at different stages in
group are the Canadian Securities Lending May. It aims to foster a greater collaborative their evolution in different regions.
Association (CASLA), the International approach to issues relevant to global
Securities Lending Association (ISLA), the securities lending by sharing experience, CASLA president Don D’Eramo says: “With
Pan Asia Securities Lending Association insights and resources. the ongoing globalisation of the securities
(PASLA), the Risk Management Association lending industry it is undeniable that there
(RMA) and the South African Securities It will also provide a common front that will is a need for a harmonised approach to key
Lending Association (SASLA). strengthen communication with financial themes which impact us all across the globe.
Continued on page 6
www.securitiesfinancetimes.com
Inside this issue
Lead Story
3
Securities lending associations establish
working group for global collaboration
Latest News
8
Matrix Applications launch DV Securities
20
on QTIX platform
Latest News
10
Banco BICE strengthens Calypso Cover Story
investment and use of Adenza technology GLMX: applying technology gains to
liquidity access
Latest News GLMX’s chief operating officer Sal Giglio tells SFT that the 3–5-year path
18
ICMA’s ERCC publishes preliminary for financing and other money markets will be driven by the convergence of
findings of green repo consultation liquidity and technology.
US Panel
US Securities Lending: Tapping into Pockets of Opportunity
US lending specialists draw lessons from COVID and the GameStop short squeeze, discuss the
24
demands of sustainable lending and highlight where lenders can drill into new opportunities moving
into 2022
ESG
Seeking a sustainable future
Sunil Daswani, Standard Chartered Bank’s global head of securities lending, speaks to Carmella
34
Haswell about the importance of ESG, how to reach a sustainable future and what’s driving demand
and supply within the securities lending market
Sustainable lending
Making lending sustainable
Xavier Bouthors, senior portfolio manager, investment solutions, NN Investment Partners, talks to
38
Bob Currie about responsible investment, sustainable lending and the direction of NN IP’s securities
finance strategy
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1
Global Investor ISF Survey 2020 – Securities Finance Agency Lending named Most Innovative Lender
News Round-Up
6
Securities lending associations ensure that securities lending increases State Street’s Collateral+ now
establish working group for returns for lenders, supports liquidity and operational with Acadia
global collaboration price discovery, and contributes to more
Continued from page 3 sustainable financial markets.” State Street’s Collateral+ business is now
operational with Acadia’s Initial Margin
CASLA is pleased to work in closer “While our respective associations already Exposure Manager (IMEM) and Margin
collaboration with our global partners as cooperate in the service of our industry, Manager (MM) services.
we tackle similar responsibilities, albeit coordinating in this way will expand the
with regional nuances for the advance positive impact of our work regarding This integration provides automated
and sustainability of our market and its ESG, short selling and other global dispute management for initial margin
shareholders.” industry priorities,” says RMA director of agreements and electronic margin call
securities lending and market risk messaging across multiple products.
ISLA CEO Andrew Dyson comments: Fran Garritt.
“The work that we have already done It will not only aid clients in complying with
together confirms that cross-association “Although there is a growing demand Uncleared Margin Rule (UMR) regulations,
collaboration will be increasingly important from investors who recognise that ESG but also State Street’s clients will avoid
as our members demand common disclosure is vital for good investment and resolve disputes for SIMM/Grid
solutions to global issues. The creation decisions, there is no agreed international calculations and increase their operational
of this group provides an ideal platform framework yet for SLB,” says SASLA efficiency by providing standard
to develop and reflect upon how we chairperson Michael Wright. calculation, reconciliation and straight-
want to respond to these challenges and through margin processes.
opportunities that resonate across all of “SASLA hopes that the Global Framework
our markets.” for ESG and securities lending is a first step Staffan Ahlner, global head of Collateral+
towards the convergence of existing metrics for State Street, says: “With the pending
“Participants in the securities lending and standards. Markets do differ, but the final phases of the Uncleared Margin
market have global reach and global underlying principles remain the same rules for over-the-counter (OTC)
priorities,” says Paul Solway, PASLA and hence collaboration is key to ensure derivatives, an increasing number of our
director and communications officer. a sustainable securities lending market in clients are looking to replace manual
“The industry needs to work together to accordance with guiding best practices,” processes with new tools that focus on
advance our shared priorities. We want to says Wright. workflow automation.
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News Round-Up
8
“By maximising low touch operational has introduced an over-the-counter platform and aims to improve liquidity in
processes and speedy resolution of (OTC) trading platform to support repo corporate debt markets.
disputes, we continue to focus on ‘enabling transactions on corporate debt securities.
the trade’ for current and future clients.” “Considering the large volumes of fixed
The Sri Lankan exchange indicates that income securities actively traded by market
Matrix Applications launch DV this new service will complement trading participants outside the CSE’s platforms,
Securities on QTIX platform services provided for corporate bonds the CSE observed the opportunity to play a
on its automated trading system (ATS) role as a facilitator in connecting securities
Matrix Applications, a New York-based
finance technology service bureau,
announces the launch of DV Securities
onto its QTIX platform.
The platform is a securities finance solution
for brokers, dealers, asset managers and
banks in fixed income capital markets.
It is engineered to deliver exceptional
performance for organisations, with functions
including front-office trade entry, settlement
and clearance, reporting and accounting.
Eric Carlino, executive vice president
of fixed income at DV Securities, says:
“We executed our first trades as a Tier-1
netting member of FICC’s Government
Securities Division (GSD). Throughout
the lengthy regulatory and clearing bank
approval processes, the staff at Matrix
Applications showed their professionalism,
personal attention and focus on helping DV
Securities achieve this milestone.”
Stephen Mellert, managing director for
Matrix Applications, adds: “DV is able to Say goodbye to tedious tasks.
achieve straight-through-processing from
brokers down to DV’s clearing agent and Say hello to potential.
GSD account at FICC. And the managed
Wouldn’t Securities Finance be simpler with more integration and automation?
services team lets DV focus on what they Shouldn’t the day be about opportunities, not mundanities?
do best, trading.” It’s time to change the way we work.
Columbo exchange launches repo
platform for corporate bonds www.tradingapps.com
The Columbo Stock Exchange (CSE)
Securities Finance Times
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News Round-Up
10
providers with collateral who need to AxiomSL, announces that Banco BICE to make long-term investments. Latin
finance their liquidity requirements with has strengthened its investment in the America is a strategic market for Adenza,
cash providers,” says the exchange. firm’s Calypso platform and extended its with a number of new client signings
implementation of Adenza Technology. recently confirming our strong positioning.
The OTC platform provides a matching
facility, ensuring counterparty trade In 2018, Chilean bank Banco BICE “We now operate through three offices in
instructions are aligned prior to execution of launched a project to replace incumbent the region where we continue to invest to
the repo transaction, as well as supporting technology for its capital markets business provide leading global solutions adapted to
collateral replacement and rollovers. with a new cross-asset platform. local market conditions and conventions.”
On launch, the OTC platform will support With the first phase of this project completed, Moscow Exchange to
only repo transactions conducted against including the implementation of Adenza’s accept international stocks
CSE-listed corporate debt securities. In Calypso collateral management and clearing as collateral
consultation with market participants, CSE solution, Banco BICE will focus on expanding
will review opportunities for extending the its transformation programme to front-to-back, National Clearing Centre (NCC), part of
range of securities that may be financed on cross asset trading and risk management. the Moscow Exchange Group, will accept
the platform as the service evolves. securities of international companies as
Marcelo Espinoza, treasury director at collateral for trades made on Moscow
The Securities and Exchange Commission of Banco BICE, adds: “We are excited about Exchange markets.
Sri Lanka, the securities market regulator, has the Adenza’s Calypso implementation
approved necessary changes to trading rules process since it will allow us to address The move will allow professional market
and master repurchase agreements prior to a front-to-back business solution. It is a participants and their clients more flexibility
the platform going live on 16 September. technology we can rely on to deliver more in funding their operations on MOEX and
efficient, highly developed, and better- will help facilitate their trading activity.
Banco BICE strengthens quality products for our clients.”
Calypso investment and use of The firm has listed 18 international stocks
Adenza technology Luis Gustavo Penteado, Adenza’s head of including Microsoft Corporation, Cisco
sales for South America, says: “Despite Systems and Intel Corporation, that will be
Adenza, the company formed by the the uncertainty caused by COVID-19, it is accepted as collateral, with the list set to
merger of Calypso Technology and encouraging to see Banco BICE continuing expand in the future.
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Earlier this month, NCC was granted the organisations will need to observe the grants them the agility necessary to adopt
status of Qualified Derivatives Dealer central tenets of Global PSSL — as well best practices. As this draft standard has
(QDD) by the United States Internal as relevant regional ESG agendas — identified, fragmentation is one of the
Revenue Service (IRS). This status allows and demonstrate an active engagement barriers that increases costs and
Moscow Exchange to facilitate trading in with stakeholders, according to inhibits innovation.
US securities for banks and brokers, as Global PSSL.
well as on the Money Market. “Global PSSL brings a broader community
With an objective to be forward-looking, of practitioners, also ESG experts, and, in
Professional traders will be able to make universal, fit for purpose and dynamic, the turn, increases trust and confidence in
better use of the margin trading mechanism paper listed a number of challenges to the markets”.
on MOEX’s equity market for their delivering these aims, including a limited
retail clients. awareness of ESG, the stigma associated The consultation will end on 15 November
with certain aspects of securities lending 2021.
Global PSSL publish and the limited participation of beneficial
consultation paper on ESG- owners in securities lending programmes. Fund Recs automates connectivity
driven SBL with DTCC’s GTR service
The draft was co-authored by
Global Principles for Sustainable Securities International Finance Corporation’s The Depository Trust & Clearing
Lending (Global PSSL) have published (IFC) Oluwatoyin Alake, Stanbic IBTC’s Corporation (DTCC) has partnered with
a consultation paper on ESG-driven Babatunde Majiyagbe, Global PSSL Fund Recs to deliver new automated
securities lending and borrowing in and University of Exeter Law School’s reconciliation capabilities in support of the
emerging markets. Dr Radek Stech, the South African European Market Infrastructure Regulation
Securities Lending Association’s (SASLA) (EMIR) and the Securities Financing
The draft hinges upon three components Juanita Taylor, SASLA’s Jean Turner, and Transactions Regulation (SFTR) trade
that relate to enabling market infrastructure, Global PSSL College of Advisors’ reporting requirements.
ensuring appropriate tax schemes and Roy Zimmerhansl.
strengthening supportive legal foundations Fund Recs’ Velocity service, a no-code,
in various emerging markets. The co-authors say: “When compared cloud-based platform that automates
with more developed economies, the reconciliation for the investment
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DTCC’s Global Trade Repository can compare and match trade records comments: “Fund managers are under
(GTR) service. submitted to the GTR service with their increasing pressure to ensure EMIR and
internal accounting book of record. SFTR reporting is timely, accurate and
This will retrieve and analyse trade data for complete. Our reconciliation modules
accuracy and completion, simplifying and By doing this, Fund Recs says fund provide a streamlined, fully auditable, and
streamlining the reconciliation process, managers can ensure that trades have been automated solution for managers, which
explains Fund Recs. submitted and are complete as defined helps to ensure their governance needs
by the European Securities and Markets are met.”
Under EMIR and SFTR, fund managers are Authority trade reporting requirements.
required to submit their transaction data Meaney says: “We are delighted to be
to a trade repository in a timely manner. Additionally, the new connectivity allows collaborating with DTCC as entering into this
Oversight of this transaction data is critical Velocity to automatically retrieve clients’ agreement enables us to increase the level
to ensure data quality and adherence to trade data from GTR, facilitating timely, of automation we provide to our clients.”
the mandates. efficient, and straight through data quality
control, eliminating manual processes. Chris Childs, managing director and head
By leveraging Fund Recs’ Velocity of repository and derivatives services,
service and DTCC’s GTR, fund managers Alan Meaney, CEO of Fund Recs, adds: “DTCC is committed to helping
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15
establish a robust, comprehensive following a successful prototype pilot with As well as this, it has been designed to
reporting infrastructure for the global market participant firms. support new features with interoperability
derivatives market. between the Project Ion platform and
Project Ion is an alternative settlement the classic settlement platforms at The
“We welcome the opportunity to work with platform that leverages distributed Depository Trust Company (DTC), and to
innovative third-party service providers ledger technology (DLT). It is specifically ensure adherence to DTCC’s regulatory
like Fund Recs to build connectivity to our modelled around a netted T+0 settlement standards across resiliency, stability,
repository services and help our mutual cycle, but it is also capable of supporting security, risk, and controls.
clients meet regulatory mandates in Europe T+2, T+1, T+0 or other extended
and beyond.” settlement cycles. Project Ion’s functionality will be introduced
in phases. The first phase of the Project
DTCC’s Project Ion advances The platform is designed to provide a Ion platform will support bilateral deliver
into development phase clearance and settlement option for the order transactions that will be initiated
industry leveraging DTCC’s core benefits by pilot participants through client nodes
The Depository Trust & Clearing of risk management and volume capacity, hosted by DTCC.
Corporation’s (DTCC) Project Ion initiative including netting and the trade guarantee
is set to move into a development phase of the central counterparty (CCP). Once launched, the transactions will be
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16
processed through the Project Ion platform For clients, this means that while the general success of the platform.
and then passed to DTC’s existing systems industry can move ahead to achieve T+1
for settlement processing, DTCC explains. accelerated settlement on DTCC’s classic Hillery says: “Project Ion holds the promise
systems, those clients ready to integrate of new settlement functionality supported
Future phases of Project Ion are expected onto the ledger can begin development by robust technical capabilities and is a
to extend the platform’s functionality over efforts and start to ready their firms for the key part of our ongoing efforts to further
time to realise the reconciliation efficiencies future operating model without waiting for accelerate settlement and build upon
offered by DLT. Other phases are anticipated full-market adoption. current same-day settlement capabilities.”
to include the provision of access through
a client-hosted node and expanding the According to Michele Hillery, general Murray Pozmanter, head of clearing
transaction types processed by the platform. manager of equity clearing and DTC agency services and global business
settlement service at DTCC, the industry’s operations at DTCC, comments: “Project
Meanwhile, DTCC has planned for early primary goal must be to create efficiencies Ion has demonstrated that settlement in
and later adoption of the functionality without introducing additional risk to a T+1 or T+0 environment are effective
and technology offered by Project Ion, to markets, and client participation and use cases for DLT, and we look forward to
ensure the phased roll-out is responsive to feedback at every iterative step of this working with our clients and the industry to
clients’ individual development agendas. journey will be pivotal to the continued launch the new platform.”
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18
ICMA’s ERCC publishes preliminary findings of green repo consultation
The International Capital Markets Association Asked whether there are other possible funding goes into green activities but both
(ICMA’s) European Repo and Collateral intersections between the repo market and counterparties claim the green collateral as a
Council (ERCC) has released a summary sustainable finance that are not addressed commitment to green investment.
report on the role of repo in green and in the paper, four respondents highlighted
sustainable finance. the idea of sustainability-linked repo, Responding to this point, a number of
where counterparties need to fulfil certain respondents underlined the importance of
This publishes preliminary findings of an environmental, social and governance maintaining a clear methodology to ensure
ICMA consultation process, which was (ESG) key performance indicators (KPIs) or that green investments are only counted
launched on 22 April 2021 with the release sustainability performance targets to access once. For example, they should only be
of an ICMA consultation paper and extended cheaper cash (ie pay lower interest). considered for the sustainability metrics of
until 4 June 2021. one of the parties to the repo transaction.
Other respondents highlighted the use
The trade association intends that this of other green, social, sustainability and Beyond greenwashing, respondents
should serve as a starting point for promoting sustainability-linked debt instruments (GSSS) highlighted the need for clear procedures
broader debate in the repo community around beyond bonds, including loans, trade finance to ensure that collateral eligibility criteria
sustainability issues and steps to explore and letters of credit. are applied throughout the lifecycle of the
existing opportunities and potential risks in repo transaction — and that the ESG quality
this area. The consultation process identified potential of collateral is not compromised through
demand for green collateral swaps, where collateral substitution that replaces ‘green’
The paper examined three potential areas one party receives high-rated liquid non- assets by ‘brown’ assets for example.
of intersection between the repo market GSSS collateral and transfers GSSS
and sustainable finance objectives: repo collateral to the counterparty for a fee. Other respondents indicated that collateral
with green and sustainable collateral; quality is a potential risk as “green does not
repo with green and sustainable cash Respondents also identified value in creating necessarily mean better credit”.
proceeds; and repo between green and mixed collateral baskets or pools, which
sustainable counterparties. may be a mix of different underlying GSSS In providing guidance on what the ICMA’s
collateral, or a basket of GSSS collateral mixed role should be in developing a green and
The summary report is based on with a small amount of non-GSSS collateral. sustainable repo market, the most-popular
20 responses submitted during the response was that the association should
consultation period, representing the views Reflecting on where they identified greatest provide clear definitions and standardised
of 18 firms. However, the ICMA says that potential risks to their firms linked to a green approaches for different types of ‘green
discussion on the topic is ongoing and and sustainable repo market, 59 per cent repo’, potentially through a specific
further feedback on these questions is of respondents identified ‘greenwashing’ as framework similar to the ICMA’s Green and
still welcome. being their top concern. Social Bond Principles.
Asked which of the three intersections Specifically, they associated greenwashing The consultation also indicated that the
between repo and sustainability (outlined with the risks associated with incorrect ICMA should continue with its regulatory
above) are most relevant to respondent firms, classification of products as ‘green’ investment, engagement in developing the foundations for
62 per cent said that ‘green collateral repo’ is or ‘double counting’ of green collateral repo, a green repo market, as well as encouraging
most relevant to them and “that it is the most where no additional green assets are created debate and working with other trade
straightforward concept to implement”. through the transaction and no additional associations and market bodies.
Securities Finance TimesFidelity Agency Lending® can help your firm optimize performance. • $2.4+ trillion in lendable assets • 20+ years of securities lending • AI-powered technology • Capital Markets expertise Our flexible program customization and proprietary benchmarking tools set us apart. Visit i.fidelity.com/agencylending for more information. For investment professional or institutional investor use only. Not authorized for distribution to the public as sales material in any form. Third-party marks are the property of their respective owners; all other marks are the property of FMR LLC. Fidelity Institutional® (FI) provides investment products through Fidelity Distributors Company LLC; clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC; and institutional advisory services through Fidelity Institutional Wealth Adviser LLC. Fidelity Capital Markets® is a division of National Financial Services LLC, Member NYSE, SIPC. 245 Summer Street. Boston, MA 02210 © 2021 FMR LLC. All rights reserved. 995549.1.0
Repo technology
20
GLMX: applying technology gains to
liquidity access
GLMX’s chief operating officer Sal Giglio tells SFT that the 3–5-year path for
Bob Currie financing and other money markets will be driven by the convergence of liquidity
reports and technology
The past 24 months has brought major liquidity pressures, with the systemic liquidity management of the last three decades.
Q4 2019 repo spike followed by the impact of COVID-19 from Q1 2020.
Then it brought massive liquidity injections from central banks. How It is uncontroversial to say that deep, orderly and accessible financing
has GLMX helped the market manage these liquidity demands through markets are the cornerstone upon which the capital markets are built.
its trading platform and repo technology? Traders, treasurers, issuers, liquidity managers — both private and
public — and regulators need daily access to the markets to complete
The liquidity spikes which occurred in the fall of 2019 and the spring their essential tasks and to keep supply and demand in balance.
of 2020, while disruptive to both primary and secondary securities Historically, the Federal Reserve managed excess reserves to an
markets, are explicable and not outsized in the context of the history of accuracy of billions to tens of billions of US dollars. In today’s era of
Securities Finance TimesRepo technology
21
“ample reserve management”, excess reserves total in the trillions – benefit everyone involved, especially in the environment of global zero
above US$3 trillion during 2020. interest rates.
One of the impacts of such significant excess reserves is that, on most In those early days, we leaned heavily on the encouragement and
days, with all that liquidity in the system, nobody thinks much about market support of “early adopters” that shared our vision. The fact
its availability as reserve liquidity is in dramatic excess to system that GLMX has been, to date, a specialist in repo has been quite
demands. On those days in 2019 and 2020 there were external shocks motivating. At GLMX, we often say, at this point with a smile, that we
to the system – tax-related liquidity demands on top of US Treasury had no other market to fall back on. Either we became successful
auction settlement in 2019 and fear-based liquidity hoarding due to the with repo or we failed. We also learned, especially in a world
COVID-19 pandemic explosion in March of 2020. with historically low interest rates, that cost matters. As such, we
have used the advantages of a super modern technology stack to
On top of those variables, the Fed’s longstanding, intra-day liquidity minimise the cost of our technology solution. Combined, these forces
addition tools were long out of practice and regulatory changes made it have enabled us to provide a world-class technology ecosystem
difficult for liquidity to move from those who had it, mostly banks in their while maximising value pricing.
Fed accounts, to those who needed it – primarily securities companies,
even many with large bank owners. Unsurprisingly, the result was
GLMX’s long standing ambition in the funding markets is not to change
higher financing yields. While GLMX harbours no illusions about telling
what is being done, but how it is being done. What are your next
the Fed how to implement its monetary policy, we can help to maximise
priorities? In which direction are your clients taking you?
market participant access to liquidity pools in situations such as those
above. GLMX technology maximises liquidity location, negotiation, That’s an accurate assessment and a great question. GLMX’s top
execution and straight-through processing in near real-time, helping priority has been — and continues to be — to provide a comprehensive,
market participants to identify and manage their funding needs much cost-efficient technology solution for the securities finance markets
more quickly than if they communicated via chat, email or voice and and to provide best-in-class client support. The continuous feedback
booked trades manually. we receive from our clients is that we are succeeding in doing so
every day and that our reputation for excellence is driving new clients
Thus, managing the full trade flow, from inquiry initiation, negotiation, in our direction. That said, a common theme which we hear from our
execution to straight-through processing, not just part of this process, is clients is that they would like to extend GLMX’s technology and client
essential for clients to improve their funding not only in times of stress responsiveness to adjacent money markets.
but as a matter of business as usual. An added benefit of the digitisation
of securities finance execution during the COVID-19 pandemic was the Having said that, at GLMX we fully appreciate the dangers of
enabling of “virtual trading floors” in a work-from-home environment, broadening our product set too quickly and without significant and
in which GLMX technology afforded traders, liquidity managers and active client support. We recognise that each instrument within the
risk managers the ability to monitor and execute liquidity needs in near global money markets is its own micro-ecosystem with its own unique
real-time. challenges. To serve those markets as well as we do in the repo space,
it is imperative that we identify the critical pain points and efficiency
enhancers that will maximise adoption and value for our current and
What lessons have you learnt during this time as a specialist provider
prospective clients. One market which met those criteria, and which we
of repo tech?
have actively engaged both from a technology and client perspective, is
In the early days, as GLMX set on the journey to digitise the manual the fixed income securities lending space.
workflow around securities finance, we regularly ran into the argument
that “this market, while admittedly inefficient and largely manual, Securities lending is a very close cousin of repo and our technology
has worked fine for many years and therefore needs no efficiency naturally extends to that market. GLMX’s approach has been
improvement”. GLMX’s view was that enhanced access and efficiency to identify early adopters – which is exceptionally challenging in
in a market as critical to the overall financial system as repo would itself – and to use their initial feedback to build essential functionality
www.securitiesfinancetimes.comRepo technology
22
for their market needs. We then iterate to perfect our technology to flexible, customisable and intuitive technology; second, expert
provide comprehensive functionality and maximum value to those industry-experienced employees; and, third and most importantly, a
clients. This process has been ongoing for more than two years at deep and broad network of buy-side, sell-side, technology vendors
GLMX and we are well advanced in the process with most major and large industry utilities which have grown over several decades.
securities lenders. We are very clear that no market consists of a single participant. By
their nature, markets are at their best with a broad and diverse group
of participants. The same is true of technology. While GLMX values
GLMX first came to market in 2010, not long after the global financial
its independence, as it allows us to maximise focus and to serve all
crisis had prompted root and branch review of funding markets. As
clients equally, we fully appreciate that a growing, interconnected
a specialist in liquidity-seeking technology solutions, how do you see
network of partners is integral to our clients and therefore, to
funding markets changing over the coming 3-5 years?
GLMX’s success.
Saying that GLMX “came to market in 2010” certainly would elicit
some rolled eyes among our founders. What GLMX really did from This approach to business is already clearly evident in our
2010 to about 2014 was to learn how NOT to build technology for connections to numerous mid and back-office systems and
repo and other money markets! In seriousness, that often-frustrating clearing mechanisms, all to the mutual benefit of those partners
process of identifying what it takes for clients to adopt technologies was and, ultimately, to our mutual clients. GLMX technology is
instrumental in making GLMX what it is today. designed to manage all types of global entities, is agnostic to
trade settlement (delivery-versus-payment, tri-party, cleared,
As mentioned above, the prime directive for our clients all along has DLT), and can send trade information to multiple venues at once
always been liquidity, liquidity, liquidity. In today’s challenging market (for example, trading firms, tri-party agents, custodians, prime
environment, efficient access to liquidity is paramount. Given regulatory, brokers, third-party technology vendors and trade repositories).
interest rate and COVID-related challenges, market participants have We believe that such interconnectivity is the key to the future
opened their minds to new evolutions in securities finance markets. At we envision.
GLMX, we strive to execute for the present while building technology
capable of serving a future where numerous outcomes are possible. By way of identifying some GLMX innovations specific to the
securities finance market, low-touch trading and automated
At GLMX, we believe that the most likely 3–5-year path for execution continue to evolve with several clients already doing so.
financing and other money markets is the convergence of liquidity The allure of such capabilities is their ability to streamline client
and technology. What such a notion means to us is that market response times, pricing and trade execution which, when combined
participants will increasingly see, negotiate, execute, process and with straight-through processing, reduce position management risk
analyse liquidity solutions across an array of global short-term and trading errors.
markets. The only way to realise that future is through integrated and
highly flexible technology, which maximises access to liquidity and to Another area, still in its infancy but with interesting potential, is digital
data which support liquidity-related decision making. Whether across ledger technology — specifically how smart contracts can be used
geographic regions, across individual funding instruments, across to capture the comprehensive characteristics of securities finance
cleared or non-cleared alternatives or across cash and digital assets, transactions which include not only trade terms but legal agreements,
market participants increasingly will be drawn to the massive liquidity settlement locations, delivery instructions and more. Again, we are
available in integrated markets. actively exploring partnerships with leading DLT innovators to the
mutual benefit of our mutual clients.
What does GLMX’s technology strategy look like for the next 3-5 years?
How are you applying innovation to enhance the matching, workflow, At GLMX, we have always emphasised, over everything else, the need
connectivity, and reporting tools that you offer for repo transactions? to understand our clients’ needs and translate the promise of new
technologies to real-world solutions which maximise client outcomes.
Three pillars which differentiate GLMX are: first, ultra-modern, That is our past and our future.
Securities Finance TimesFlexibility. Reliability. Durability. There’s No Substitute for Certainty. certainty-bnymellon.com
US Panel
24
US Securities Lending:
Tapping into Pockets of Opportunity
US lending specialists draw lessons from COVID and the GameStop short squeeze, discuss the demands of
sustainable lending and highlight where lenders can drill into new opportunities moving into 2022
Securities Finance TimesUS Panel
25
Panellists
Justin Aldridge
Senior vice president, head of agency lending
Fidelity Investments
Mark Coker
Head of North America equity agency trading,
securities finance
Northern Trust
George Rennick
Head of agency securities finance – Americas and
global head of client relationship management in
agency securities finance, J.P. Morgan
Vikas Nigam
Director, Head of Agency Securities Lending for
the Americas
Deutsche Bank
Tom Ryan
Head of asset-liability trading, global securities
lending solutions group
Mitsubishi UFJ Trust & Banking Corporation
Martin Tell
Senior managing director, global head of securities
finance, State Street Global Markets
How do you assess the performance of US securities lending markets short sellers retrenched to strategise about the new dynamic of crowd
during 2021 to date? What trends have you noted in terms of loan trading, with investors targeting companies with high short interest.
balances and lending fees? What have been the high earners — and
the weak performers? IPOs and special-purpose acquisition company (SPAC) IPOs have
been key market drivers as well. Special situation opportunities
Justin Aldridge: The year began with one of the largest and highest- like mergers and tenders have been down this year, compared to
impact short squeezes the markets have seen. This had a wide-ranging previous years, resulting in a negative impact on lenders’ overall
effect, causing muted demand for fundamental single-stock shorting as earnings, but there are a few large opportunities on the calendar for
www.securitiesfinancetimes.comUS Panel
26
Q4 of this year. We have seen strong demand for US fixed income year from increased balances derived from higher valuations and
issues and clients have been able to realise significant revenues on increased high-quality liquid asset (HQLA) activity. With a number of
multiple “on the run” issues. The markets have been resilient and state treasurers and public pension plans as clients, we have also
earnings appear to be on target overall to match or slightly exceed seen the effects of the American rescue plan, with billions of dollars
last year’s North American totals. added to lendable assets. We anticipate this will be repeated if the
infrastructure bill is passed.
Mark Coker: US equity securities lending balances have risen
through 2021, predominantly due to mark-to-market adjustments as From the broker-dealer perspective, we have seen shifts in borrowing
equity markets continued to rally. This market dynamic, supported by and funding needs to mirror the reflation trade (go long equities and
Fed stimulus and lower interest rates, has resulted in a softer specials short fixed income), with broker-dealers taking advantage of excess
space. The rise of retail trading groups has also added borrower demand for their business to address regulatory requirements like
caution on highly shorted securities. High earners have generally extending duration and shifting balances to net stable funding ratio
come from new issuances (IPO/SPACs) or the exchanged-traded fund (NSFR)-friendly clients.
(ETF) sector.
Martin Tell: Overall, as always, there have been bright spots and
Strong performance in the US fixed income securities lending space challenges. Two challenges I would note were: the contraction of
has come with the flight to quality and renewed demand for high-quality specials trading after the GameStop and Reddit stocks’ short squeezes
liquid assets. Loan balances increased in 2021 relative to the previous as short sellers de-risked and assessed their positioning to deal with
year, in part due to the abundance of US dollar cash in the market. We both a new and determined equity investor base; and renewed interest
have seen a general increase in lending spreads, driven in large part in oversight of short sellers and other market participants.
by lower rebate rates on loans versus cash collateral and demand for
benchmark securities. The continued low-rate environment is also a challenge for fixed
income lending as well as cash reinvestment. The bright side has been
George Rennick: On a year-over-year comparative basis, 2021 is that, despite a period of de-levering, there has been a resurgence
underperforming 2020, mostly due to an abundance of US dollar cash of directional specials activity in IPOs, SPACs and, as a general
in the financial system, spread compression and a lack of specials. statement, small cap securities have garnered good interest from
Loan balances have increased across all asset classes, but relatively borrowers through the summer.
speaking fees have been compressed, with the exception of a handful
of specific securities. SPACs, ETFs and specific IPO and deal-name Which regulatory projects will have the greatest impact on your
securities have offered high returns. Cash re-investment yields and lending programme over the 12 months ahead? What adaptation
general collateral securities have been challenged. challenges will these present?
Vikas Nigam: 2021 has been another interesting year from a securities Rennick: Over the next 12 months, certain European based regulations
lending perspective. Though not quite as dramatic as the 30 per cent such as the Central Securities Depository Regulation (“CSDR”) will
plus stock market drop of Q1 2020 and subsequent recovery, early 2021 garner focus and support. Adherence to global banking capital rules will
saw securities lending make mainstream news headlines as hedge also have maximum impact as entities remain focused on balance sheet
funds were caught in massive short squeezes in popular meme stocks management and optimisation.
like Gamestop and AMC – all the while allowing clients holding these
securities to enjoy bumper revenue. Coker: The most poignant of topics is CSDR, which introduces new
measures for the authorisation and supervision of EU Central Security
As with 2020, Q2 onwards has been a different story. With stock Depositories (CSDs) and sets out to create a common set of prudential,
markets continuing to rise and an ever increasing amount of cash organisational, and conduct of business standards at a European level.
being made available at the short end, spreads have continued to CSDR applies to all European CSDs and to all market operators in the
be squeezed at both ends, with revenue only being up year-on- context of securities settlement — which will need to directly comply
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