SLT talks to Jerry Friedhoff of Broadridge about breaking down barriers between desks, offices and locations as securities finance goes global
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What changes have you seen with the organisational alignment of securities financing desks across your clients?
Repo desks and now securities lending desks have aligned themselves more with the front office than the back office due to their revenue producing capabilities. These groups have similar trading economics and cultures but different regulatory and accounting treatments. A recent trend that we have noticed across our client base is that many firms are now also aligning their collateral management functions with the front office. They say this is happening because of the increasing revenue implications that are associated with their collateral management operations.
Does this mean that there are more synergies between these business lines than before?
Yes, because firms are looking for higher quality collateral to meet recent exchange obligations for central party clearing of OTC derivatives. These ‘collateral upgrades’ can be executed under a SLA (securities lending agreement), which influences the repo desk’s trading activity. The volume of interactions between these groups has increased and we believe that it will continue to increase as new regulations unfold. There is a very real scramble for high-grade collateral that we are seeing across the industry right now. We are trying to anticipate our clients’ cross-desk financing trading needs by providing an integrated position management solution across various asset and transaction types.
As global regulatory changes occur, what challenges do you foresee arising for your clients?
As global banks and broker-dealers try to meet global regulatory changes and intense funding expense reduction pressures, they are trying to evolve from a geographically segmented business model to a more global operating model. As they transition to this global model, they are often challenged in getting a holistic view of all asset classes across their regional offices. They are telling us that they need enhanced aggregation and trade execution capabilities to efficiently manage collateral requirements/opportunities across the various central counterparties.
Another challenge is the complexity of optimising collateral across the portfolio of options that they have. The complexity continues to increase as they layer regulatory changes onto their various funding models.
In addition, there are often difficulties in moving their inventories of collateral between various entities efficiently because of organisational and system silos that exist due to many years of business line independence. They want to be able to direct funding activities to the most advantageous markets around the world but there are sometimes system, organisational or process barriers that they need to overcome.
What about those that still regard various business lines as separate or part of the back office?
Part of our role as a solution provider to the securities financing market is listening to what our clients business objectives are and responding appropriately. There are a wide spectrum of organisational models that are used across the industry that we continue to support, but the more progressive firms are moving towards a revenue centric (ie, front office) business model for their global financing desks. We tailor our solutions to support the various securities financing stakeholders in the front, middle and back office regardless of how they are organised. Broadridge is less concerned with how our clients align internal user groups than how we can facilitate the end-to-end business requirements of the various stakeholders.
In a recent meeting with an executive responsible for global funding for a large Europe-based bank, he outlined a clear road map of current technological needs and his organisation’s strategic growth plan. By looking at the roadmap, it is clear that the focus on collateral management is now becoming a front office priority, and the front office sees opportunities in the market to increase revenues by managing this process effectively.
What can a solution such as FinancePro do to satisfy these changing client requirements?
In March 2012, Broadridge announced the FinancePro Global offering to respond to the evolving market demands previously discussed. FinancePro Global is a multi-instance, multi-asset, back office agnostic securities finance trading system. Repo, securities lending and eventually collateral management desks will be able to use FinancePro as a common platform to manage their positions globally. FinancePro was designed to integrate well with Broadridge’s securities processing solutions (impact for fixed income, BPS for equities and GLOSS for non-North American securities), as well as other third party processing platforms.
The aggregation capability of FinancePro will provide firms with a holistic view of collateral across multiple business lines. Our goal is to provide funding executives with the tools that they need to make timely, intelligent collateral usage decisions in this fast changing environment.
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