What are some of the recent trends you have witnessed in securities finance trading via the EquiLend Trading Solutions platforms?
Mike Norwood: Next generation trading (NGT) gained success in enabling market participants to automate the lending of equity, general collateral (GC) securities. As the vast majority of firms in the global lending market have migrated their GC flow onto NGT, we have continued to invest in expanding platform functionality to enable firms to tap into our global network to efficiently transact other types of lending trades — most notably, corporate debt, non-GC transactions and broker-to-broker trades. NGT has grown from an initial focus on straight-through processing of equity GC lending to become a trading network for all components of the global securities finance market.
We currently see more than 30 million records of inventory broadcast across our platform on a daily basis, with a daily average of 125,000 trades transacted on NGT in September 2022.
From a growth perspective, EMEA has seen a 47 per cent increase in trade counts on NGT since 2019, compared to a 10 per cent increase in the US market. As market participants optimised their businesses for Securities Financing Transactions Regulation (SFTR) and Central Securities Depository Regulation (CSDR) compliance, it became evident that electronic trade bookings set them up for success in terms of efficient settlement and reconciliation, and that has driven the push to automation through the roof. The trend is evident across all market segments. For example, the lending of European corporate debt is up 70 per cent year-over-year on NGT, and there is additional interest in migrating sovereigns onto the platform.
EquiLend has seen a significant increase in activity from the broker-to-broker market on NGT and within our ECS Loan Market. Non-GC balances (>50bps) have become a growing proportion of overall activity. Broker-to-broker flow in the US is up 700 per cent over the past four years to an average of 7,700 trades a day, currently on the back of demand for high-rate GC. Meanwhile, non-GC execution now accounts for 24 per cent of the total volume across our platform, an increase over the 13 per cent average in 2020. Off-platform execution is dwindling as firms see they are able to do more, more efficiently, across our platform. We are increasingly hearing from clients that they want to automate 100 per cent of their trade execution, and they want to rely on us to do it.
You spoke about the increase in European activity and the emphasis EquiLend has on the region. What are you doing to focus on the European market?
Norwood: We have been expanding our coverage in EMEA and APAC to ensure we maintain our global standards and local expertise. We recognise that while we have automated execution of the bulk of securities lending volumes through NGT, bringing the remaining transactions done bilaterally onto the platform will require a close collaboration with the industry. Collaboration works best in person, which is why we built a London-based Trading Solutions team, headed by Rowena Brown, to spearhead the effort in Europe. Row was a natural choice to lead it, given her industry expertise, network of contacts across the Street and her institutional EquiLend knowledge. She did a fantastic job as head of our EMEA CRM team and was someone I leaned on heavily from Boston for a European trading perspective. I am very excited to work with her more closely as we refine and execute on our roadmap and set our strategy for how we continue to add value for clients in the region.
We have appointed financing expert Matt Zienau as a product specialist for Swaptimization — soon to launch as an organised trading facility (OTF) for the European market — and further expanded the team to better interface with clients and ensure we are translating feedback directly into requirements to be added into our development pipeline.
Rowena Brown: I have seen the evolution of many of our trading services at EquiLend — I was there at the inception of NGT and central to its success in the EMEA region.
A focus of our strategy is to foster collaborative relationships with our clients and so we would like to hear from the industry more frequently. In September, we hosted onsite working groups for fixed income and equity, and I am excited about revisiting this concept more regularly. Group forums allow us to hash out details around workflow and product features, which builds engagement and ensures we are putting together solutions that solve real problems. A core of our Post-Trade Solutions team and our new RegTech Solutions team are based in London. Having multiple solution verticals within a single office will allow us to work together to integrate our tools more effectively and to provide better user experiences to our clients.
I understand EquiLend is also extending its regulatory oversight with a new OTF for the EU. Why is it important for EquiLend to be regulated in jurisdictions around the globe?
Brown: Since opening our European location in Dublin several years ago, that office has increased in strength and importance. As our largest client base is in the EMEA region, this investment in resources was pivotal to focus and service our client needs and this is something we are looking to replicate in APAC as this region continues to grow from strength to strength.
Having recently been approved as an OTF by the Central Bank of Ireland for total return swaps activity in Europe, this enhances and completes our equity derivative and securities financing solutions. We take pride in our global regulatory status as a trading venue. From a resilience perspective, we believe that being a regulated entity is good for the market and gives assurances regarding the quality of our solutions. It is important to us to have a senior presence in each region to liaise with our regulators. Volatility, regulation, risk and compliance have highlighted the importance of automating and digitising workflows. We can see the impact of CSDR in our platform’s trading activity, with total automated trade counts in Europe up 27 per cent ytd compared to the same period in 2021.
You mentioned APAC is also a region of increased activity and therefore a focus for the firm. How does Asia fit in with the trends you are seeing in electronic trading?
Norwood: We have always seen interest in automation out of Asia — Japan has long been one of our top markets globally in terms of volumes — but the region has seen an uptick in terms of automated execution. Over the past four years, APAC trading activity has increased 40 per cent — and 20 per cent ytd alone. Furthermore, we just hit a single-day high with 24,870 trades executed in the APAC region on 2 September 2022. Because we understand that there are nuances to the markets here that can not be overlooked, part of Row’s role is to bridge the gap between our relationship teams on the ground in Hong Kong and Tokyo, and the rest of the Trading Solutions team of product specialists in North America. Having an overlap in operating hours will allow for more frequent daily communication, help to ensure we keep on top of developments in the region and continue to deliver value to our clients there.
What are some of the other enhancements you have planned for EquiLend Trading Solutions going forward?
Norwood: Our solutions going forward will focus on improving overall workflow for the industry. While NGT can handle trade agreements for most securities lending transactions, the ECS Loan Market handles trade submission to the OCC Market Loan programme, and Swaptimization is live in the US and soon to launch in Europe. We are now turning our attention to the next phase of growth and beyond. A key area of investment at our end is the concept of basket maintenance. Individual transactions, and even basket constituents, can be executed across NGT today, but the headache for traders picks up with the ongoing management of target balances, substitutions, recalls and returns. By integrating our post-trade data with our trading suite, we are looking to display and monitor open balances, automate maintenance where possible through Targeted Availability and automated bids via NGT, and put control of substitutions into the hands of traders. This facility has application across multiple asset classes, with GC, fixed income and equity-for-equity at the forefront.
Brown: We are excited about our upcoming competitive bid feature, which is a hybrid approach to NGT that should allow traders to have more interaction when transacting hard-to-borrow names. With improvements to the existing push list process, and by capturing deal names, competitive bid will intercept requests to borrow on a subset of availability (expected to be new names rather than a shift away of existing names) and put them into a trading screen for lenders to evaluate borrower bids as a whole and allocate supply across one or many.
Additionally, we are improving our chat scraping functionality to allow for digitisation of locates from borrowers to lenders. This has been socialised with a number of clients at present and we are optimistic that it will foster greater STP in the hard-to-borrow market. If clients want to get away from manual execution, we are ready with the solution that allows them to achieve that goal.
Norwood: Linking NGT to the ECS Loan Market, displaying returns and recalls to traders, and focusing on taking advantage of the vast amount of availability, requests to borrow and trade tickets we have within the platform — enabling EquiLend to provide useful insights back to our users — are all on the roadmap. We recognise the need for scale and have been focusing on improving our technology stack and looking into new user interface (UI) frameworks to allow for improved user experience. We have doubled the daily volume of inventory records flowing through our system in the past few years, and therefore need to ensure we are able to handle those loads without interruption.
We will be looking to create an entirely new look and feel for NGT. It is important we move away from just a blotter for activity and instead look to present actionable insights to our clients. Summaries, visualisation and dashboards will be the future, rather than the raw data extracts we have today. I am excited about the potential to integrate swaps, cleared lending and traditional lending into a single platform and look forward to partnering with Row and our client base to continue delivering exciting new products.
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