FIS
David Lewis
23 July 2024
David Lewis, senior director, securities finance at FIS, speaks to Justin Lawson about the development of FIS's automated matching and execution platform for securities finance trades and the benefits that this will bring to lenders and borrowers
Image: Andrew Davis
What motivated your decision to establish a trading platform?
There were two coinciding events or actions that led to the start of the project overall. First, the ongoing strategic analysis of our own business, which is targeted at innovation, integration and modernisation of our solution suite, highlighted the opportunity presented by having more than 250 lender and borrower clients globally — bringing them together on an automated execution platform. We realised we had, in effect, a ready-made marketplace which could be combined with non-FIS clients to construct a deep and diverse global marketplace.
Second, we were approached by several of our larger existing clients that were keen to see an alternative provider in this section of the market. They had seen other entrants attempt to break into this space, but had failed to gain real traction. It was clear that it would take a major technology provider to make the kind of dollar and time investment needed and one that had a significant existing market footprint.
It has become abundantly clear just how much the market depended on one provider back in January. Having an industrial strength — and more importantly secure — route to market is vital for the industry to keep operating efficiently.
Could you share more details about the new service and its market positioning? Is it tailored for a specific product type such as equities or does it possess broader market appeal?
We set out to gather a comprehensive set of market requirements and created a Design Partner Group of five lenders and five borrowers, taking input from their front office and technology teams across the EMEA, APAC and North American regions. Those conversations led to the development of a comprehensive specification that was used as the development blueprint.
Importantly, three main requirements bubbled to the surface. An alternative route to market was needed to provide that all important mitigant to such a large single point of failure risk. That solution needed newer, smarter and more automated matching. And, third, the solution needed to offer significantly better value for money.
Delivering the service to market answers the first requirement. The second and third are satisfied by the way we are doing it. My mantra throughout the development programme has been to ensure “low barriers to entry, both fiscal and technical”. Any new service has to provide value for money, but it also needs to be easy to adopt technically to ensure that it is open to every type and size of market participant. The more open that a platform is, the more diverse and deep the pool of demand and availability.
The proposed service will deliver functionality that everyone is used to, although some of it in a new way, coupled with many new features and functions not seen before. That way, we plan to appeal to all markets and participants, be that in securities lending and borrowing or repo, covering global equities, fixed income and ETF securities.
The proposed new platform faces established market competitors. What are the unique selling points that distinguish this service in the competitive landscape?
We have been very careful to consider how we deliver new functionality, while ensuring there is ease of adoption. To achieve this, the proposed solution is initially focused on delivering the automated matching and execution service itself, plus several significant functional steps forward that should not need major adaptations or changes for subscribers in terms of their systems or workflows.
There is a quid-pro-quo — some of the new features require the subscribers’ underlying platforms to deliver new types of responses, but doing so will bring the advantages those functions offer to the user.
As I said previously, it is a market segment that is difficult to access, but FIS brings the size and depth required to make that a success.
Interoperability is a prominent industry term. Was your new trading platform crafted with this in mind, ensuring its capability to seamlessly coexist with other systems?
Keeping the barriers to entry as low as possible, and adoption easy, requires effective interoperability, whether that is through integration with other FIS systems or any other non-FIS system using standard connectivity protocols. Improved automation is a key deliverable for this solution and that requires close and effective interaction with other systems and solutions.
Beyond the new FIS Securities Finance Matching Platform, how does FIS assess the market's readiness for T+1. Do you anticipate that the UK will follow suit in transitioning to T+1?
The key to success here is in lifecycle management. The securities lending market is operating on T+0 settlement in the US already. FIS is adjusting our recall processing to meet the Securities Industry and Financial Markets Association (SIFMA) best practices to allow for recall issuance until 23:59 on T+0, which should more than accommodate the market needs for T+1 settlements in the cash market.
Regarding changes to the books and records requirements, FIS has adjusted end of day processing times to allow for the new Depository Trust and Clearing Company ( DTCC) updated report timings, as well as the many other vendors and products that we interoperate with. We are now aware that the UK is set to move forward with T+1 in 2027, and are actively working with industry groups to ensure a smooth transition there as well.
What other developments does FIS have in the pipeline for the rest of the year?
Vendor interoperability remains a key focus for us. We are currently working with Pirum System and released Phase one of recall interoperability before the T+1 go live.
With the T+1 go live now in the past we are currently in preparations for 10c-1/ SLATE Transparency reporting for delivery in 2024/25. We are also finalising the full lifecycle management of National Securities Clearing Corporation (NCSS) SFT trades in both Smart Loan and Loanet.
Other developments for our Smart Loan service include Short Sale Authorisation modules to improve client usability, as well as automated instruction of collateral for third-party fully-paid lending (FPL) collateral managers.
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