SFTS: Securities finance needs standardisation
29 November 2022 UK
Image: Photocreo Bednarek
Securities finance-as-a-service, golden source transaction records and standardisation are areas of particular interest in the securities finance industry as it looks to the future, panelists at this year’s Securities Finance Technology Symposium agreed.
The topics were discussed at a panel entitled ‘Securities Finance: The Future’, in which speakers discussed their companies’ recent innovations and future plans, along with their own hopes for the future of the industry.
Matthew Barnett, head of operations at Sharegain, explained Sharegain’s recent work on securities finance-as-a-service, developing an end-to-end single-stock solution that covers all lifecycle events. He stated that recent capital market growth was due to retail investor engagement, a sector which does not have access to as much capital as larger market participants. Sharegain’s solution offers a more accessible service, with the ethos that accessibility and education are essential for the industry, Barnett said.
His fellow speakers raised concerns about the practicalities of offering securities finance-as-a-service. Kevin McNulty, head of RegTech Solutions Group at EquiLend, questioned whether retail investors were educated enough to make informed decisions, and Matthew Phillips, chief operating officer and head of delivery at Trading Apps, inquired where the line between regulation and consumer protections would be drawn when it came to the retail market.
To these questions, Barnett emphasised Sharegain’s focus on education and its approach to risk management, something that he said would be made possible through recent technological developments and the availability of real-time information.
McNulty went on to explain the need for a golden source transaction record, which distributed ledger technology (DLT) can now allow for. He recounted EquiLend’s investigation into industry pain points that could be solved with DLT, and the company’s conclusion that reconciliation was a key area where cost and effort could be reduced.
After the successful launch of their proof-of-concept solution, which has been volume tested, McNulty stated that the company will work with clients throughout 2023 to provide a market-viable product.
Shane Martin, global head of securities financing sales at Wematch.live, said that the adoption of tokenised assets was at its ‘infancy stage’ and that further developments would only be prompted by an industry event, such as shortened settlement cycles.
This was disputed by Phillips, who suggested that an adoption of a golden source in one area of the industry would allow further adoption in different areas, with an understanding of the infrastructure catalysing expansion.
McNulty reported that EquiLend has seen high firm buy-ins, with banks willing to spend money in this area. He added that the company was ‘quietly confident’ in industry adoption, despite Phillips’ concerns that the shift to DLT requires a change in mindsets, with trust in technology having to take over from trust in counterparties.
Building on the need for this paradigm shift, the panel’s moderator questioned whether legacy technology would fade out or be replaced all at once. Barnett responded that although moving to new technology is ‘inevitable’, it will not happen in a ‘single jump’. Standards need to be put in place before the industry moves to this golden source, he said, but the change is something that should be driven by the industry, rather than regulatory pressure.
Michael Brown, senior associate at Clifford Chance, added that technology evolution will be iterative. With companies all vying for the same outcome and targeting the same audience, it is inevitable that different versions of ‘golden sources’ will become obsolete, until there is only one remaining.
The importance of standardisation across the industry was an issue also raised by Phillips, who stated that by using the same methods and resulting in the same output format, the common domain model (CDM) will make it easier for counterparties to communicate in a shared ‘language’. CDM will be “the glue that brings the industry together,” he added.
Martin reported that WeMatch.live has seen shortened trade times and regulatory progress in total return swaps, with an industry focus on bringing liquidity to the market. With primes looking for better ways to manage their balance sheets, portfolios and assets, there has been a rise in the number of synthetics coming to market, he said.
Concluding the panel, the speakers shared their wishes for the near and mid-future of the securities finance industry. Barnett hoped to see broader market participation and improved capital markets infrastructure, with McNulty and Brown seconding the latter. Martin anticipated better resource allocation and market competition, while Phillips looked forward to the standardisation of risk assessments and contractual negotiations, which he considered significant barriers to market entry.
The topics were discussed at a panel entitled ‘Securities Finance: The Future’, in which speakers discussed their companies’ recent innovations and future plans, along with their own hopes for the future of the industry.
Matthew Barnett, head of operations at Sharegain, explained Sharegain’s recent work on securities finance-as-a-service, developing an end-to-end single-stock solution that covers all lifecycle events. He stated that recent capital market growth was due to retail investor engagement, a sector which does not have access to as much capital as larger market participants. Sharegain’s solution offers a more accessible service, with the ethos that accessibility and education are essential for the industry, Barnett said.
His fellow speakers raised concerns about the practicalities of offering securities finance-as-a-service. Kevin McNulty, head of RegTech Solutions Group at EquiLend, questioned whether retail investors were educated enough to make informed decisions, and Matthew Phillips, chief operating officer and head of delivery at Trading Apps, inquired where the line between regulation and consumer protections would be drawn when it came to the retail market.
To these questions, Barnett emphasised Sharegain’s focus on education and its approach to risk management, something that he said would be made possible through recent technological developments and the availability of real-time information.
McNulty went on to explain the need for a golden source transaction record, which distributed ledger technology (DLT) can now allow for. He recounted EquiLend’s investigation into industry pain points that could be solved with DLT, and the company’s conclusion that reconciliation was a key area where cost and effort could be reduced.
After the successful launch of their proof-of-concept solution, which has been volume tested, McNulty stated that the company will work with clients throughout 2023 to provide a market-viable product.
Shane Martin, global head of securities financing sales at Wematch.live, said that the adoption of tokenised assets was at its ‘infancy stage’ and that further developments would only be prompted by an industry event, such as shortened settlement cycles.
This was disputed by Phillips, who suggested that an adoption of a golden source in one area of the industry would allow further adoption in different areas, with an understanding of the infrastructure catalysing expansion.
McNulty reported that EquiLend has seen high firm buy-ins, with banks willing to spend money in this area. He added that the company was ‘quietly confident’ in industry adoption, despite Phillips’ concerns that the shift to DLT requires a change in mindsets, with trust in technology having to take over from trust in counterparties.
Building on the need for this paradigm shift, the panel’s moderator questioned whether legacy technology would fade out or be replaced all at once. Barnett responded that although moving to new technology is ‘inevitable’, it will not happen in a ‘single jump’. Standards need to be put in place before the industry moves to this golden source, he said, but the change is something that should be driven by the industry, rather than regulatory pressure.
Michael Brown, senior associate at Clifford Chance, added that technology evolution will be iterative. With companies all vying for the same outcome and targeting the same audience, it is inevitable that different versions of ‘golden sources’ will become obsolete, until there is only one remaining.
The importance of standardisation across the industry was an issue also raised by Phillips, who stated that by using the same methods and resulting in the same output format, the common domain model (CDM) will make it easier for counterparties to communicate in a shared ‘language’. CDM will be “the glue that brings the industry together,” he added.
Martin reported that WeMatch.live has seen shortened trade times and regulatory progress in total return swaps, with an industry focus on bringing liquidity to the market. With primes looking for better ways to manage their balance sheets, portfolios and assets, there has been a rise in the number of synthetics coming to market, he said.
Concluding the panel, the speakers shared their wishes for the near and mid-future of the securities finance industry. Barnett hoped to see broader market participation and improved capital markets infrastructure, with McNulty and Brown seconding the latter. Martin anticipated better resource allocation and market competition, while Phillips looked forward to the standardisation of risk assessments and contractual negotiations, which he considered significant barriers to market entry.
Next technology article →
DLT is not a solution for every problem, SFT Technology Symposium panellists warn
DLT is not a solution for every problem, SFT Technology Symposium panellists warn
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
