Our Finadium technology conference in New York next week will examine how Data and digitization technologies are changing the securities finance and collateral markets. We speak with sponsors Transcend and EquiLend for a preview on what highlights attendees can expect.
Since the credit crisis, regulatory requirements have aimed to derisk financial markets as much as possible through clearing and collateralization and the consequences have been an integration across desks that used to be siloed, such as equity finance, repo and derivatives. This has caused a broad swathe of the market to seriously question what a data strategy for the new world looks like, said Bimal Kadikar, CEO at Transcend, who will be speaking on the “Data Strategy, Liquidity Management and Reporting” panel.
Typically, the information that’s needed are data points from trades, positions, reference data, legal entities, prices, accounts, among others, but what is different now is that they all need to be aggregated and harmonized across businesses, Kadikar explained. One way that is manifesting is in the need to understand how to prioritize securities across triparty agents and CCPs for optimal collateral allocations across these venues.
There is some cautious optimism that the financial services industry is at the tail end of implementing the most cumbersome regulations over the last decade, and now is the time to understand how to derive value and drive business benefits, he added.
“Getting it right will position you for significant savings and the funds that are going to be able to make the most efficient set up are going to have a fairly significant competitive advantage because they will be able to price more effectively and they will be able to drive profitability much better than people who don’t have that granular level of visibility and control,” Kadikar said.
Any competitive advantage is going to be underpinned by a collection of technologies that organizes both internal and external data in a firmwide approach, which he describes as a “network of connectivity in alignment” that boosts decision-makers’ capacities.
“That is easier said than done, but that is the challenge that needs to be solved,” said Kadikar. “In the current environment, especially rising rates environment, the value of this investment significantly increases too. What we are seeing across clients is that there is a lot more focus in getting this done and there’s a lot more urgency about the business benefit rather than just the regulatory compliance that we saw a year ago.”
A new DLT opportunity
Last fall, EquiLend convened a working group of ten firms from across the securities lending market to better understand how a digital strategy should be tackled. The overwhelming vote for a use case was to eliminate reconciliation, a major pain point in the industry, said Gary Klahr, director of Strategic Initiatives at EquiLend, who will be speaking on the “Next Evolution of Digitization” panel.
Ultimately, this led to EquiLend’s distributed ledger technology (DLT) initiative, 1Source, which is currently in a design phase to ensure that the technology is “fit for purpose” across lifecycle events, Klahr explained.
“We are focused initially on trade initiation, on rate changes, on pricing, settlement information, returns and recalls, and there are placeholders for a number of other lifecycle events in the future,” he said.
The promise of DLT is that contract details are always matched, as DLT distributes changes and updates counterparties to a trade in near real-time fashion, with a universal source of reference data. The expected benefits are a boost to trading desk productivity because the golden source data is consistent across counterparties and facilitating firms.
For the near term, EquiLend is looking at using smart contracts deployed on a distributed ledger, designed to be interoperable with blockchain and other initiatives, Klahr said, noting that having separate and disparate systems are the root cause of quite a number of the inefficiencies in the marketplace. “Shared data and collaboration is going to allow us to achieve things that we didn’t think of before,” he added.
Finadium’s upcoming conference is Finding New Frontiers: Data and Digitization in Securities Finance and Collateral Technology, taking place on September 13 in New York. Attendees across product development, technology, strategy and innovation teams can expect a content rich experience in addition to New York’s tradition of industry networking.
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