What was the reasoning behind marrying securities lending and prime services together?
The marriage of securities lending and prime services is a completely natural pairing. Think Apple and the cellphone or Google and the internet. Securities lending drives virtually all prime services structured products: synthetic longs and shorts; financing; and derivatives; and prime service clients consistently request greater securities lending access for their trading. We’ve combined them both to create a unique market advantage for our customers. Additionally, we’ll be rolling out exciting new client-centered IT products in the near future that will more closely link securities lending and prime services.
How will securities lending drive the prime brokerage business?
Our robust securities lending facility gives us access to hard-to-borrow securities and top-rate financing. We deliver these, in turn, to our prime services clients. Our prime customers enjoy direct securities lending market access, giving them the ability to trade securities that may not be available from their clearing broker or prime broker. Financing access gives clients greatly improved liquidity. Additionally, our direct market access provides customers with securities lending market transparency, which is available nowhere else in prime brokerage.
What part did transparency play in the decision?
Transparency in the securities lending market is the offering our clients ask for most frequently. It is vital information for traders, hedge funds and sophisticated investors alike. With market transparency, securities lending-prime service division clients no longer miss trades or overpay for them.
How has the team been re-structured and what benefits will this bring for clients?
Albert Fried & Company (AF&Co) has re-centered completely around the securities lending-prime services division hub. AF&Co provides the services of a much larger broker-dealer but tailors those services to individual clients, with the added benefit of securities lending coverage. Through AF&Co, prime accounts can access high frequency trading and high touch agency execution, as well as correspondence clearing and unparalleled securities lending market access.
Additionally, AF&Co has no risky leverage structure that firms with large proprietary desks may have. Also, customers appreciate that AF&Co has no debt or leverage and has extremely limited risk. We offer triparty financing as well, for an added layer of safety.
What do you see as the main benefits of outsourcing?
With AF&Co securities lending-prime services, clients can ‘unbundle’ select services from their prime broker or clearing broker and outsource them to AF&Co. Clients get the benefit of a full-service securities lending team when and where they need it. This setup benefits customers with substantial cost savings. For instance, smaller broker-dealers that do not have a securities lending desk gain primary access to a full lending desk, with better rates and access to securities that are unavailable elsewhere. Trading customers gain a full-scale securities lending desk at a fraction of the cost of building one.
How are internal securities lending departments faring at the moment? What does this mean for AF&Co?
The general Wall Street downsizing created numerous opportunities for AF&Co, as hedge funds and traders look for improved services that their prime brokers or clearing brokers cannot or do not provide. Particularly in the securities lending, prime services and financing space, AF&Co is building on a number of these opportunities.
What should the buy side take into account when deciding whether or not to move securities lending to a provider?
At AF&Co, buy-side clients gain the top rates for their long positions as well as high rate, fully-collateralised cash investments. AF&Co also provides market anonymity. When customers lend their stock through AF&Co, they remain completely anonymous to the market, as the borrower ultimately sees only AF&Co.
Regarding regulatory requirements, AF&Co offers complete regulatory coverage and reporting. In addition, expected regulatory changes increase the value of the securities lending-prime services division’s offering to customers. In the coming regulatory environment, we expect hedge funds will find it harder to obtain financing from their prime brokers due to balance sheet constraints. AF&Co offers its customers secure financing against different types of collateral.
As you can see, the union of securities lending and prime services at AF&Co truly represents the evolution of these two industries. Like Google and Apple, AF&Co’s unique securities lending and prime services combination will continue to be an industry frontrunner, to the clear benefit of our customers.
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