Introduction

The securities lending market is expected to continue to grow by 5% in the US and 10% in Europe according to recent industry analyst reports. In this expanding market the need to improve efficiency and drive down costs is never far from the mind of the business manager. Securities lending is an area in which there is still considerable scope for efficiency improvement as it is one of the last areas to have fully embraced automated processing. The lack of automation, evident in front, middle and back office activities, is largely due to the variable nature of the trades and the complexity of the operational lifecycle. This is particularly true in international lending, where the cross market complexities make automation even more challenging.

Key findings

• Improved pre-trade support – Three leading banks stated that having a real-time consolidated, global positions management system, from which the trader can see long and short positions at a glance, puts the trader firmly in the driving seat.
• Standing out from the competition – All of the banks that Lepus interviewed agreed that the characteristics that have always differentiated one firm from another include the ability to provide fast, quality service, access to a wide range of securities, and flexibility of collateral acceptability. All of these factors help lenders get the best returns on the securities they manage.
• Diverse collateral types – The US banks that were interviewed cited that in the US market, ‘cash is king’ in terms of collateral, and most market participants are well positioned to manage any associated cash re-investment. Whereas, the two leading European banks stated that the opposite is true in Europe, with high quality, non-cash collateral such as government bonds being the preferred option.
• Handling higher volumes – Recent market volatility, along with the push for business expansion, has resulted in increased volumes for securities finance.

Conclusion

Participants in the securities lending industry have choices when it comes to automation. They can choose to implement a standard system, or those with deep pockets and generous timelines may opt to invest in in-house developed systems. While the industry has progressed technologically at a measured pace to deliver innovations to specific business functions, disparate systems can pose problems with gaps in processes and overall accountability.

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