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The primary source of global securities finance news and analysis Issue 274 30 March 2021
LENDER FOCUSED
FROM THE START
More than 20 years after launching,
eSecLending’s team discuss how the market’s
only specialist agent lender is still going strong
by keeping to its core business
Automating Swaps Work Flow
© 2020 EquiLend Holdings LLC.
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Lead Story
3
Kayenta goes live
New market entrant Kayenta is targeting in the best place to receive the most Childs has now taken on a management role
allocation inefficiencies between hedge funds competitive rates. with Jefferies.
and prime brokers by offering a cloud-based,
modular platform that promises to reduce the Financing inefficiencies have been a first- Kayenta has since captured a wealth of industry
high costs of financing. hand challenge for many of the Kayenta team knowledge to take-on management roles
who aim to leverage their own experience of including Hagstrom, who now serves as CEO
A team of capital markets veterans including working on prime broker, securities financing after 15 years at UBS where he most recently
Matthew Peakman, Chris Hagstrom, and Mark and hedge fund treasury desks to get to the served as head of global financing services for
Toone have unveiled the fintech with a promise core of the issue in an innovative, technology- the Americas, and Kelly Russo, who also joins
to bring efficiency to the hedge fund treasury oriented way. from UBS where she spent the past few years
functions with a focus on reducing the painful as equities chief of staff, following seven years
costs of financing operations. The company was founded in 2018 by in its securities lending business.
Peakman, who brings experience as Nomura’s
The Kayenta platform will sit between a head of fund and corporate derivatives trading, Before that, Russo spent just over six years
hedge fund and its prime brokers to review and Dan Childs, who was previously head of on Goldman Sachs’ securities lending desk.
and amalgamate reports on financing international treasury at Citadel, who first met She will now bring all this to bear on Kayenta’s
rates and allocation preferences to ensure during their time at Oxford University. The pair business development expansion.
a hedge fund is placing its business saw the start-up through its first 18 months but continued on page 6
www.securitiesfinancetimes.com
Inside this issue
Conference Report
ISLA Post Trade
20 Topics included new markets, post-pandemic recoveries, ESG
and the role of SBL in novel and legacy asset manager portfolios
Corporate Actions
Broadening horizons
Avinash Parmar, senior product manager at Pirum
22 Systems, discusses the launch of the corporate action
service CoacsConnect
Regulation Incoming
16
C3: Compliance controls and expertise Specialist Agent
C3 Post Trade quantifies the scale of the challenge Lender focused from the start
24 posed by CSDR’s SDR and offers advice on how to
prepare for strict settlement oversight
20 years after launching, eSecLending’s team discuss how the market’s only
specialist agent lender is still going strong by keeping to its core business.
Publisher: Justin Lawson
Electronic Trading Justinlawson@securitiesfinancetimes.com
Rainmakers +44 (0) 208 075 0929
ConneXXion Markets on where the electronic repo
Editor: Drew Nicol
28 platform fits into the modern financing landscape to
provide much-needed liquidity amid regulatory constraints
Drewnicol@securitiesfinancetimes.com
+44 (0) 208 075 0928
Reporter: Alex Pugh
Data Analysis Alexpugh@securitiesfinancetimes.com
+44 (0) 208 075 0926
Licences, regulations and safety
FIS Astec Analytics’ David Lewis examines the balancing Reporter: Maddie Saghir
30 act of allowing easy-access to financial activities while Maddiesaghir@blackknightmedialtd.com
+44 (0) 208 075 0925
not exposing amateur investors to undue risk
Office manager: Chelsea Bowles
+44 (0) 208 075 0930
Marketing director: Steven Lafferty
Industry Appointments design@securitiesfinancetimes.com
34 Comings and goings at BCS Global,
HQLAx and more
Published by Black Knight Media Ltd
Copyright © 2021 All rights reserved
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For Broker Dealers,
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Agent Lenders,
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Inc. EquiLend Europe Limited is authorized and regulated by the Financial Conduct Authority. EquiLend Canada Corp. is authorized and regulated by IIROC. All services offered by EquiLend are offered through EquiLend LLC, EquiLend Europe Limited, EquiLend Canada Corp. and EquiLend Clearing Services. EquiLend and the EquiLend mark are
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In the search for alpha, you need more than just a lending agent.
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1
Global Investor ISF Survey 2020 – Securities Finance Agency Lending named Most Innovative Lender
News Round-Up
6
Kayenta goes live According to UK analytics firm Coalition, brokers which need to be consolidated and
continued from page 3 hedge funds forked more than $20 billion to normalised to be able to see what their funding
their financing counterparts in fees alone in profile looks like. A fund will then have to take
Beyond its staff, Kayenta also benefits from 2019. Toone speculates that for the average each prime broker’s preferences into account.
an advisory team that aims to enhance its hedge fund the costs associated with Kayenta will take on this burden and present the
in-house market expertise to guide product borrowing stocks and cash are second only to results of its analysis to investment managers
development and ensure it accurately targets personnel overheads. with suggestions on where reallocations might
the mutual pain points of both hedge funds and be considered.
prime brokers. Toone suggests that some of these
losses can be offset by negotiating more As one of its unique selling points, Kayenta
The fintech has spent the past two years favourable spreads but the realities of will also receive reports from administrators
developing and testing its modular, cloud- this balance sheet-intensive service mean to weed out any errors and avoid
native proprietary system with clients and prime brokers are unable to shave much off unreconciled data.
formally brought its platform to market as of before it becomes unviable.
January, with several funds already on board. “Kayenta’s technology allows us to take the
Moreover, all but the largest hedge funds reconciled position data, process it through
Toone — who joined in October 2019 as are unable to stomach the enormous costs our proprietary accrual engine to determine
chief marketing officer after nearly a decade of building an in-house system to address what the financing costs should be, and then
at Morgan Stanley as head of delta one financing inefficiencies, as opportunities to compare against the actual costs on each of
structured product sales for Europe, the Middle recoup some of that investment is limited the prime broker reports,” Toone explains.
East and Africa — tells SFT that the start-up unless you’re willing to share your technology
was conceived to offset external pressures to with your peers. This data management exercise provides the
reduce fees and overheads by streamlining necessary reliability to enable managers to
wasteful and cumbersome treasury processes. This is where Kayenta comes in. Each instruct reallocations with confidence, but will
prime broker has a different calculation also eliminate long-running booking mistakes
Electronification of execution and the Markets methodology to their financing rules, and that can create administrative headaches and
in Financial Instruments Directive have reduced report them differently. potentially large reimbursements, he says.
overheads in trading and research, respectively,
and the last real bastion of costs is a hedge Therefore, hedge funds may be receiving up Toone predicts this will lead to significant
fund’s financing activities, Toone tells SFT. to 20 reports a day from each of their prime benefits for both the prime broker and the
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News Round-Up
8
hedge fund with the former getting more of the The idea for an automated securities lending The partnership also is part of a wider focus
assets it wants and the latter seeing significant solution was born from Citi’s D10X programme, by Citi on developing its custody services,
savings in time and money. a strategic growth initiative that nurtures the with a focus on expanding its securities
development of business solutions. lending product.
Early evidence suggests that the financial
savings can offset Kayenta’s aggressive fee A team of Citi entrepreneurs-in-residence “It’s our ambition to provide Citi custody clients
structure in a matter of weeks, Toone claims. tested, validated, and prototyped the product with the world’s leading agency securities
before vetting and selecting Sharegain. lending service,” says Stuart Jarvis, Citi’s head
As Kayenta moves into the second
development phase it plans to bring additional
functionality to allow investment managers to At Trading Apps, we’re obsessed with
constant improvement. Every second
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Citi and Sharegain launch
unique automated SBL
solution for wealth managers
Citi and Sharegain are partnering to launch
a “first-of-its-kind” fully-automated securities
In today’s
lending solution for the bank’s wealth
trading world,
management custody clients. good enough
isn’t good
enough.
Sharegain’s platform aims to offer private
banks, asset managers and online brokers
access to the securities lending market in
a way previously exclusive to the largest
institutional investors.
The new bespoke solution with Citi is designed
to integrate with wealth managers’ existing
IT infrastructure and provide a fully-digital
user experience for underlying customers,
from opting into the programme through to
managing their lending, the partners explain in
a statement.
Say hello to potential.
The platform is fully developed and several tradingapps.com
clients are currently being onboarded.
TA_Good-Enough_ad_full-pg_A4.indd 1 17/11/2020 12:57
Securities Finance Times
Flexibility. Reliability. Durability. There’s No Substitute for Certainty. certainty-bnymellon.com
News Round-Up
10
of agency securities lending for Europe, the Private equity firm Thoma media at Bridgepoint, alongside a range of
Middle East and Africa. “Securities lending is Bravo acquires Calypso operational initiatives, the transition of the
a well-established practice among institutional business to a cloud model combined with
investors, but one that most private investors International private equity group Bridgepoint and best-in-class client service was undoubtedly
have been unable to benefit from. That’s global growth investor Summit Partners have sold key in accelerating growth.
why our clients are demanding a tailored, Calypso Technology to Thoma Bravo, a private
automated securities lending service they can equity investment firm focused on the software “With this transformation now complete and
offer to their end customers.” and technology-enabled services sectors having demonstrated very robust growth
throughout the COVID-19 pandemic, the
Boaz Yaari, CEO and founder of Sharegain, The deal, which is subject to customary business is well placed for the next stage of its
adds: “We are excited to work with Citi to bring regulatory approvals, is expected to close in Q2. evolution under new ownership,” says Nicault.
this first-of-its-kind solution to their clients and
to set a new standard for our industry.” Financial terms of the transaction were Calypso’s CEO Didier Bouillard explains:
not disclosed. “Thoma Bravo has a proven track-record of
“This collaboration is a testament to the power supporting its portfolio companies by investing
of Sharegain’s solution and its potential to According to David Nicault, partner and in growth initiatives and strategic acquisitions
democratise securities lending.” global head of digital, technology and designed to drive long-term value and we
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Securities Finance TimesNews Round-Up
11
are excited to continue delivering innovative Pacific (APAC) trade support, BNY Mellon, assurance from the regulators to investors
solutions to the financial markets while says: “I’m not seeing any real kind of changes that stringent measures are in place to ensure
accelerating our growth.” in behaviour just yet.” the security of their assets and the efficiency
of transactions.
Holden Spaht, a managing partner at Thoma Speaking during the panel at the DTCC
Bravo, comments: “Calypso’s technology allows CSDR Series 2021, Smith comments: “The The new regulatory framework aims to bring
its world-class customer base to navigate the industry would like to start seeing trade fails risk and cost reduction benefits to financial
highly complex and regulated capital markets come down to the point where the industry’s markets as a whole.
with greater transparency and lower costs.” investment into this space will kick in but I’m
certainly not seeing this yet.” In August 2020, the European Securities and
CSDR: There are yet to be Markets Authority published a final report on
changes in industry Smith warns that if the industry does not see draft regulatory technical standards to postpone
this towards Q3 2021 then February next year the implementation of the CSDR settlement
Although the industry has been discussing the could be a worry. discipline regime until 1 February 2022, mainly
Central Securities Depositories Regulation due to the severe disruption of the pandemic.
(CSDR) for some time, Martin Smith, head CSDR provides a set of high and consistent
of Europe Middle East and Africa and Asia standards across compliant CSDs, providing While Smith notes that the penalty regime is
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www.securitiesfinancetimes.comNews Round-Up
12
fairly understood, he highlights that there is a operations, Credit Suisse, suggests that settlement is a topic of interest. “If we look at that
question mark over what is going to happen continued momentum in efforts from all of the over a medium-term view then CSDR is going to
with the buy-ins. industry participants will help to solve this problem. work towards moving towards faster settlement
times as well as greater risk elimination, and that
The European Commission recently revealed that “I hope that continues as it is far easier to will be better for all of us,” he says.
51 out of 91 respondents to the CSDR consultation solve this as an industry together rather than it
said the buy-in regime should become voluntary. be viewed as just a ‘broker/buy-side problem’. The moderator, Matthew Johnson, director
I hope to see continued engagement between Europe, Middle East and Africa (EMEA) ITP
Consultation responses showed that 14 the buy and sell-side on how we can work product management and industry relations,
respondents requested the buy-in rules be kept together to combat operational risk and how DTCC, asked the panel if the trade fails across
while 26 either did not respond or were neutral. to make things as automated and efficient as the industry is significant.
possible,” comments Jones.
In September 2020, the International Capital The panel agreed that they are quite substantial
Markets Association said the requirement to Weighing in on this, Derek Coyle, custody but measures are being taken to help prevent
appoint a buy-in agent under the CSDR buy-in product manager, vice president, Brown trade failures such as increasing straight-through
framework is “potentially extremely problematic”. Brothers Harriman (BBH), adds: “CSDR is like processing, ensuring accuracy and timeliness of
the pandemic in the way it is not going away data, looking at reference data, as well as robust
More recently, an alliance of 14 trade bodies anywhere or anytime soon. I hear anecdotes pre matching to prevent those fails.
called for a CSDR buy-in delay and cited from people saying 1 February 2022 is the end
the buy-ins should be held back from the date in sight; the CSDR settlement discipline “We’ve used our historic data we have on those
implementation schedule until it’s fit for purpose. goes live and we move on.” fails. By looking outwards, it’s around working with
our clients and our brokers to make sure the data
“I predict there will be lots of confusion between “However, we need to be proactively building coming into BNY Mellon is accurate and timely.”
all parties in February 2022. We will have to on what the long term view will be. Tactical
work with clients and custodians to get over decisions will need to be made and I hope that “We’ve looked at referenced data and adopted
that initial period. I think it will be a challenging the tools, support and investment that is going DTCC ALERT Global Custodian Direct, which has
period especially if the issues on buy-ins are on now considers the long term otherwise it reduced our settlement risk for incorrect data and
not resolved,” says Smith. will bring long term challenges.” reduced our overheads and we can set up our
accounts for our clients because we don’t have
Matt Jones, global head of GM equities Coyle also notes that moving towards T+1 that big bulk of data to maintain,” affirms Smith.
QPA_CurvatureSecurities.indd 1 14/04/2020 09:25:02
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14
More industry news More regulation news More industry news
Three of Australia’s largest SLR exemptions will lapse, SEC calls on funds to consider
super funds stop lending Fed says revenue and voting obligations
Since March 2020 at least three of the The US Federal Reserve Board has The agency’s acting chair Allison Herren Lee
top five largest superannuation funds — confirmed that changes to the supplemen- has scrutinised the balancing act index funds
measured by assets under management tary leverage ratio (SLR) will expire at the must perform in exercising their voting capa-
— have closed or significantly curtailed their end of March as planned. bilities while also maximising returns through
securities lending programmes to cut off an active securities lending programme.
short sellers from access to those assets. The action was taken last year to exclude
US treasury securities and central bank Lee questioned whether previous advice
AustralianSuper, the largest fund with more reserves from the SLR to encourage regarding participation in corporate govern-
than USD 154.8 billion in AuM made a lending. But now the treasury market has ance through voting versus the prospect
temporary freeze on lending its Australian “stabilised” the regulator will seek input on of greater revenue from securities lending
equities portfolio permanent in December 2020. potential changes to the SLR. gave too much credence to the latter option.
Read full article online Read full article online Read full article online
More technology news More regulation news More industry news
Broadridge expands EU Don’t get starstruck by celebrity- HSBC completes first
fund reporting capabilities endorsed SPACs, SEC says transaction in Saudi Arabia
Broadridge has expanded its European fund The SEC’s Office of Investor Education HSBC has completed the first securities
regulatory reporting solution with the integra- and Advocacy says celebrities are not lending transaction in the Kingdom of
tion of transaction cost calculation services immune to making risky investments when Saudi Arabia, as part of a concerted effort
from financial products, trading and mar- it comes to SPACs and may be better able by the country’s regulators to kickstart an
ket-making services provider Virtu Financial. to sustain any losses incurred. active financing market.
The partnership will provide a solution for The rise of retail trading is sounding alarm HSBC, in its role of prime broker, borrowed
asset managers to disclose transaction costs bells with regulators and short sellers alike, Saudi Arabian equities from an unnamed
as they fulfil the MiFID II and Packaged Retail who fear that some companies may arti- regional asset owner, providing access to the
Investment and Insurance-based Products ficially inflate their worth or misrepresent kingdom’s burgeoning equities market for an
fund reporting requirements. themselves to investors. also unnamed global institutional investor.
Read full article online Read full article online Read full article online
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Securities Finance TimesSpecialist Agent
17
Lender focused from the start
Twenty plus years into their business, the eSecLending team sat down with SFT to discuss how
the market’s only specialist agent lender is still going strong all these years later by keeping to its
core business. And, we find out how their segregated programme model is increasingly attractive to
sophisticated beneficial owners in the current market environment
eSecLending has come a long way since its the business since its founding and many other industry veterans that
start-up days, but what were your highlights have been with us for more than 10 years. I am always really proud of
from the past 18 months? our team and I think we have the best combination of experiences from
the market.
Craig Starble: We have experienced significant growth over the past
18 months to two years, as evidenced by a number of things including the We’ve also spent a lot of time talking to our clients and listening carefully
fact we’ve added several new large global pension plans and sovereign to their top priorities. Clients were pleased that securities lending
wealth clients. Our existing clients have also continued to award us a functioned smoothly through the market volatility last spring and many
greater share of their lending business, which we have always prided are increasing their focus on ways to make their lendable assets more
ourselves on being able to retain and grow our client mandates over valuable, such as through broadening collateral profiles. We also have
time. Lastly, we implemented our strategic partnership with Standard seen our clients interested in expanding their peer conversations with
Chartered Bank, which has given us exposure to the Middle East and one another and many have joined the new Global Peer Financing
Asia regions. Association (GPFA).
Over the past three years our on-loan balances have grown by more Brooke Gillman: We have been very supportive of our clients
than 110 per cent. By comparison, the industry averages, as defined by wanting to establish the GPFA. From our early days, we hosted
the data providers, were up single digits over the same period. I think annual meetings for our clients which created opportunities for them
this tells a good story of where we are today and speaks volumes to to network and over time that evolved into deeper connections and
the strength of our business. Meanwhile, we continue to focus on trade peer relationships. It was a natural progression for us to support
automation, which is critical for our industry generally and also for us as our clients and the work of the GPFA and help them establish their
our business continues to grow and remain competitive. non-profit, beneficial owner-led group. GPFA provides a forum for
the beneficial owners to discuss everything from best practices,
Even through this growth, like the rest of the industry, we have had to to ways to evolve the industry to better meet their needs. We are
adapt quickly to the COVID-19 crisis. We were prepared from a technology happy to see this develop because it creates a healthier market by
perspective and achieved the transition to working remotely efficiently allowing major lenders to get together and share strategies on how
and seamlessly. But, we couldn’t have effectively done it without our to do more business and enhance their programmes, which is good
experienced team, which is a combination of folks that have been with for the industry overall.
www.securitiesfinancetimes.comSpecialist Agent
18
Keeping to the core offering even after so many to found eSecLending. So, from the start, our entire model was
years seems to be the key to your success. How built around partnering with clients to come up with a solution and a
has your business changed in terms of client service that meets exactly what they want on a very individualised
base over your more than 20 year history? Why basis. This foundation of customisation is the underlying theme of why
do you think clients look to hire eSecLending clients choose to hire us. The outperformance of our auction model
and have the reasons changed over time? and segregated programmes appeal to some of the largest and most
sophisticated lenders in the market.
Chris Jaynes: As you note, the core offering we have and the way
we approach the business and the differentiations we bring to clients Our client base is around 30 beneficial owners globally, including four of
is the same today as it was when we started. We take a ‘client focus’ in the top five largest US public pension plans, as well as some very large
everything we do and that is not accidental. We were a beneficial owner asset management organisations.
when we started the business and we have never changed our philosophy
about focusing on the client first and I do think that makes us unique. Our As beneficial owners have become more
clients engage with us for several reasons, such as our auction model educated on securities lending and
and separate account structure, which are both unique to the industry sophisticated in their needs, has eSecLending’s
and together bring a big lift to portfolio performance. Compared to the model become more attractive?
standard custodial model we have far fewer clients, which allows us to
give each client a much greater degree of focus. We are also different in Jaynes: It’s been a slow and steady progression as many beneficial
that all our staff are dedicated to securities lending and don’t have any owners historically supported this programme in their back office and
conflicts or distractions that other agents may have. viewed it as an operational function, tied to custody. This view has
changed over our 20-year history. Securities lending is not an operational
eSecLending was formed by two major beneficial owners so from day process, it’s a trading and an asset management process and should be
one we have been singularly focused on what our clients want, which viewed as a front office activity. Many of our clients are those beneficial
is transparency, control, and flexibility. Unlike in a traditional pooled owners that have moved their lending business from the back to the front
programme, we can offer those things through our segregated model. A office and therefore care more about transparency and performance. The
pooled model will seek to maximise returns for the pool as a whole which lender community is increasingly agreeing with how we and our clients
is different than what is best for any individual client. Ultimately, because a view this product and that has made it easier for us to make the case for
segregated programme offers greater transparency and control, it results our services.
in enhanced risk management and greater returns for clients. Moreover,
as the market evolves and you introduce concepts such as ESG, the Part of eSecLending’s strength is its
specific needs of each individual client further undermine the premise of strategic partnerships. Can you talk about
the pooled programme because what one client may require for ESG will those relationships and how you work with
be different than another. We’ve been offering tailored programmes since those organisations?
day one, so it’s very natural for us.
Simon Lee: Over the years we’ve developed several partnerships
Gillman: As Chris noted, we were a beneficial owner that then with custody banks and fund administration companies. With these
partnered with CalPERS, the largest public pension fund in the US, relationships, our partners are looking for us to either fill a product gap
Securities Finance TimesSpecialist Agent
19
with our agency securities lending offering, or they’re looking to enhance as the new Securities Financing Transactions Regulation reporting
returns for their clients, or reduce expenses within their existing securities requirements.
lending businesses. From our perspective, these partnerships give us
access to beneficial owners that we might not otherwise have had access Starble: Before I joined eSecLending I ran a large custodial lender’s
to and to deliver our products to them on behalf of those partner banks. securities lending product with a significant number of clients in a pooled
We have several of these arrangements in place today and we are programme. But there were challenges with that pooled model as we’ve
also having conversations with other organisations along similar lines. already explained, and it was evident early on that specialist agents
This is reflective of developments in the broader market and some of would be able to outperform for larger clients with the best assets.
the challenges market participants face, and is illustrative of our unique
position and independence in the market, which enables us to partner Both pooled and segregated models work, but which one you want
with firms in this way. depends on what kind of client you are. Larger entities and specialist
managers with attractive supply will do better in a segregated model
Most recently we partnered with Standard Chartered Bank, which is a whereas smaller clients will likely get better returns as part of a pool.
good example of what we are talking about here. SCB is now able to
offer a new product to their clients via eSecLending, and we’re now able As an agent lender in a world dominated by
to access new customers around the globe, including the Asia, Middle new regulations and now ESG, which all
East and Africa regions, places where SCB have a particularly strong make the job harder as beneficial owners
presence but where we have not traditionally focused. SCB also has require a more tailored programme, how does
very deep and long relationships with a large number of government eSecLending approach these hurdles?
entities worldwide, including the sovereign wealth funds and central
banks that play a big role in the global securities lending market, a sector Lee: First and foremost, our job as an agent lender is to support whatever
which eSecLending has not historically serviced to any degree, but is our client wants to do in the ESG space, which, as Chris noted earlier,
tailor made for the lending services we provide with this partnership. our business model is able to effectively deliver on given our segregated
and highly customisable programmes. For example, non-cash collateral
eSecLending remains one of the only is becoming a bigger topic on the ESG agenda, and the ability to screen
specialist agent lenders in the market. Did for non-compliant securities. This is challenging in the traditional pooled
you think that would still be the case when environment but relatively straightforward in a truly segregated structure,
you first launched and why do you think which is how we’ve always managed our client programmes. So, we see
others aren’t trying to replicate your model? tailoring ESG principles into each client’s programme as an extension of
what we do for them today.
Jaynes: The barriers to entry in this market are very high and it’s difficult
to offer a compelling programme with the amount of technology build Outside of that, as an independent organisation solely focused on
you need and the number of people and expertise required. We were securities lending we are able to be nimble and flexible when developing
fortunate to have a large beneficial owner behind us with an interesting products, and some of the work we’re doing with ISS around proxy voting
and attractive asset base that borrowing counterparts were eager to is a testament to that, responding to client requirements and working
participate in. Absent that, I think it’s a very difficult road. In fact, barriers with them to develop the next generation of reporting tools integrating
to entry today are greater now with increased regulatory pressure, such securities lending and proxy voting data.
www.securitiesfinancetimes.comConference Report
20
ISLA Post Trade panel strikes
optimistic tone for 2021
The discussion, held remotely, touched on promising new markets, post-pandemic recoveries,
ESG and the role securities lending is playing in both novel and legacy asset manager portfolios
The International Securities Lending Association’s (ISLA) 11th Post some markets have recovered quicker than others and many
Trade Conference took place on 16 March and, as with so much else portfolios have switched to emerging markets. “We’ve seen a trend
in the current climate, it was a virtual affair. towards a heavier emerging markets lean from a securities lending
perspective,” he added.
This year’s two-day event featured a panel discussion titled Key
Business, Trading & Product Drivers Impacting Our Markets, which As we move further into the year, they said corporate activity has been
delved into how, in these exceptional times, key regulatory, economic “very positive” and revenues have been up for beneficial owners. New
and political drivers are influencing trading decisions and business markets and new opportunities represent “new frontiers” — in Middle
development priorities. Eastern markets and Asia Pacific, investments have seen an increase.
Three panellists — one representing a global investment manager, Ultimately, as investments have moved forward and transitioned into
one the global head of securities lending at a major bank and the these new markets, securities lending has continued to be a “big
last the head of EMEA securities lending at a banking multinational focus” as regulators and local market exchanges have been “very
— joined ISLA CEO Andrew Dyson to take stock of the past year and open and very positive” with respect to securities lending.
comparing the motions of the pandemic era markets to where we find
ourselves three months into 2021. The first panellist said that as an asset owner and asset manager,
they were able to see market dynamics “through two very distinct
One panellist started off on a high note. “The positive resilience lenses”. On the asset manager side, despite an “interesting year”,
shown by the securities lending industry deserves a shout out,” and one of the “positive behaviours” coming to the fore was “a new
despite the storm of March and April last year, “from our perspective, generation of fund managers” that use securities lending as a
our volumes were up to more than double to the month of March”. portfolio management tool to enhance customer outcomes.
Leading on from that, “we’ve seen client and investment behaviour There is a “new breed” of asset managers, they said, who are
change substantially,” they said. There’s been a search for yield, launching new portfolios that consider securities lending “from the
Securities Finance TimesConference Report
21
get go” and see it as a “very powerful option”, asking themselves Capitalising on that segue, Dyson asked the panel just how important
what does the lending framework look like from day one? the ESG agenda really is. In response, one panellist said that,
ultimately, in the context of changing portfolio dynamics, “there is
And then there’s legacy portfolios, which in the past may not have a general acknowledgment that our investment behaviours have a
engaged with securities lending, but, they added, are now “carefully positive or negative impact on the world,” and you would therefore
reconsidering” it in order to enhance their customer outcomes. All of expect investment behaviour to change.
this is “very exciting,” they said.
On just what ESG means to investors, they said that on an
Continuing the optimism, they said that “if you compare broader environmental basis, “we have a clear lens what ESG means, there’s
markets in 2021 to 2020, notwithstanding the volatility of March and a lot of synergy”, and to a lesser extent it’s the same for the social
April, markets feel optimistic, less fragile and have more substance”. aspects of investments.
The third panellist concurred with this sunny optimism, framing it as a But in terms of governance, “it means different things for different
“global view” and commenting that these “positive sentiments” are coming people”. Asset owners in different regions will consider what is
through largely on the long-side of portfolios rather than the short-side. socially acceptable and what constitutes governance standards in
different ways, he added.
They went on to say that although Europe has had a challenging
start to the year, it’s “nothing compared to March and April 2020”. As securities lending is a “big part of the governance conversation”,
Other reasons to be cheerful include plenty of corporate activity it is incumbent on managers and asset owners to ensure they are
taking place, plenty of corporate restructuring, dividends are being optimising performance and capturing opportunities.
paid again and appetite for investment is high.
“There is a need for an industry review, for a baseline or some kind
On which region of the world has done the best over the past 12 of consistency for ESG,” they noted. “From our perspective, we’re
months and looks set to capitalise on that success, one panellist very keen to ensure all investment habits align with ESG,” and with
was unequivocal; the US. “The SPAC phenomenon has been really its impacts on reporting, collateral behaviours, investment habits, it’s
helpful” in that regard, they said. important to “have the tools in place”.
Two panelists specifically highlighted China as a market with great Another speaker echoed many of the ESG sentiments, stating that
potential in the medium term. ESG is “front and centre” at their firm. “It’s the buzzword that’s out
there at the moment,” and conversations with supply-side feature
“Asia has really been an area of growth with China opening up,” one it predominantly.
panelist said.
“There is a significant need for transparency,” they mused.
On the subject of new frontiers, another speaker noted that, “looking “Given this phenomenon is here to stay,” and people will always
internally”, their firm is “very much in favour” of the broader role have a desire to do more with their assets, and securities lending
securities lending can play in market liquidity and price discovery. can coexist with that desire, “you need to know what liquidity you
are taking down and what the stability of that liquidity is going
Looking forward, there are two “key themes that will form the heart to be like”.
of our agenda in 2021,” they said. The first is the role of securities
lending in supporting broader Environmental, Social, and Corporate They concluded that once we have that much-needed transparency,
Governance (ESG) growth. The second, “how we can promote “it’s simply a pricing conversation, and I don’t think it’s a huge leap to
diversity and inclusion, both at industry and the business level”. get that incremental transparency that we need”.
www.securitiesfinancetimes.comCorporate Actions
22
Broadening horizons
Avinash Parmar, senior product manager at Pirum Systems,
Drew Nicol discusses his first year with the service provider and the recent
reports launch of its corporate action service CoacsConnect
Avinash, you are approaching a year with In essence, all of Pirum’s new product developments are driven by
Pirum, how have you found the move to a our FutureTech initiative. This encompasses both internal and external
service provider? technologies. Through FutureTech and, more broadly, over the past 20
years, Pirum have established a strong reputation for building automation
It has been a very exciting journey developing a product from initial concept solutions for the securities finance industry.
through to design, build, implementation, and launch. Pirum’s approach
has really opened my eyes to exactly what it takes to successfully build It is also notable that client demand and advances in technology have
and launch an entirely new service. When I joined Pirum, the corporate acted as a catalyst for this evolution and you will be hearing much more
actions service was being discussed as a concept. Fast forward to today on our exciting roadmap throughout 2021.
and we have clients live and realising the benefits of automation in the
corporate actions space. From a corporate action’s perspective, it has long been an area that
has lacked harmonisation, standardisation, and automation. Despite
One of the key drivers behind me making the move to Pirum was the various industry initiatives being set in motion to address some of these
opportunity to develop a best-in-class solution with and for our clients in challenges, and raise awareness, there is still no market standard when it
the corporate actions space. comes to the systematic processing of an event between counterparties.
This is where Pirum, working with its cornerstone clients, are driving the
Pirum appears to be broadening their product agenda to reduce risk, and increase straight-through processing (STP)
suite, what has been the driver(s) for this? rates for all corporate action processing.
Securities Finance TimesCorporate Actions
23
Additionally, the industry has seen the need to amend its operating model is minimal because our solution has been built in a way that works in
due to regulatory related developments, including: SFTR, CSDR, SFDR, harmony with any in-house or vendor corporate actions system.
UMR and SRD II
In summary, the ability to automate the event life cycle, from notification
Pirum has now launched its corporate distribution through to facilitating payments in a fully STP manner is a
action service, CoacsConnect. How did this real game-changer. More broadly it shows how the Pirum FutureTech
come to fruition? initiative is really making a difference.
Corporate actions have been an area of inefficiency for our clients for a Many companies withheld dividend
long time. Recent regulatory changes and the desire for improvement, payments in 2020, do you expect that to
meant that this became a far higher priority for our clients. change in 2021 and should we expect to see
more corporate action activity?
In developing CoacsConnect we were helped greatly by our clients acting
as design partners. Given my role as an ex-market practitioner, I worked The events that unfolded during 2020 certainly impacted markets
closely with those clients to ensure that what we developed was exactly considerably across many regions with European dividends falling by
“fit for purpose”. Thereafter, we hired a team of subject matter experts almost 30 per cent during 2020 accounting for nearly $170 billion worth
to design an operating model that would provide both automation and of dividends being withheld or cancelled.
connectivity between counterparties to efficiently process corporate
actions in a timely manner, reducing the friction and inefficiencies that However, with the lifting of COVID-19 restrictions and the successful
exist today. It is also true to say that, in developing the CoacsConnect roll-out of the vaccine during 2021, leading financial institutions forecast
model, our aim was always to leverage Pirum’s unique position whereby a rebound by as much as 6 per cent this year with much of the rebound
we can offer connectivity to a significant majority of the market given the being driven by the banking sector paying special dividends and utilising
overall number of firms who already use our services. strong cash positions to make up for some of the decline in distributions
in 2020. An increase in corporate actions activity is a near certainty in the
Given your vast experience in the corporate financial markets as they deal with the coronavirus crisis. That growth will
actions space, what do you feel Pirum can likely be seen in a rise of events such as takeovers, mergers, and stock
bring to the market that is missing? splits, as companies in a variety of industries must restructure due to the
impact of the virus during 2020.
The first things that immediately spring to mind are network, connectivity,
and automation. For me these are the most important considerations that Can you summarise the key benefits to
are missing from existing Corporate Action solutions. adopting the Pirum corporate actions services
Financial institutions have been investing considerably in recent years, in Of course. Pirum’s corporate actions service provides an automated,
both vendor-based and in-house asset servicing solutions that process centralised solution for managing all corporate actions. The service will
corporate actions. However, it is the connectivity between around 100 enable both lenders and borrowers to be better positioned to improve
institutions that is missing, and this is where Pirum completes the circle. operational risk, meet regulatory demands, and provide improved
controls and management for all types of corporate actions.
Pirum’s solution connects our clients and provides them with a
centralised service where they can automatically issue notifications, CoacsConnect will provide connectivity between counterparts and enable
agree, query, and pay corporate actions events while tracking reconciliations for corporate actions in real-time, allowing for events to be
all communication, without the reliance on emails or other time- paid and closed on a fully automated basis reducing capital impacts to
consuming processes. lenders and borrowers. The removal of manual emails and faxes will lead
to more efficiency and enable beneficial owners to offer better deadlines
In addition, the onboarding effort for clients joining CoacsConnect for voluntary events.
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