Supported by EquiLend, this white paper has been prepared by securities lending specialists Pierpoint Financial Consulting. The first in a series of three papers exploring operational efficiency in the securities finance industry, it covers the back story of the securities finance industry from the 1990s to the present day.
Securities finance in its 'modern' iteration has seen tremendous growth in supply, outstanding balances, and revenue generation. The dramatic rise in borrowing demand from hedge funds has fuelled an increase in prime brokerage services, drawing in investors attracted by the low-risk incremental alpha that securities lending creates each year from otherwise static portfolios.
However operational inefficiencies, high costs and resource requirements which plagued the market in the 1990s and 2000s have not improved in line with business expansion as might have been reasonably expected by informed observers, leading market participants and solutions providers. Developing operational efficiencies within the industry infrastructure is vital but Operations teams are often neglected within the ecosystem.
This paper describes the evolution of the operating framework in which securities financing transactions were carried out during the 1990s, recalling key roadblocks and the removal of some procedural inefficiencies with the progressive march of technology. It recounts the founding launch of Pirum and EquiLend in the early 2000s and the speed of uptake for both services, providing recognition of the industrial solutions required to address systemic inefficiencies. The paper establishes the reasons which restricted the post-trade world from keeping pace with the front-end while market expansion continued and why the easy solution of adding staff did not solve for more complex, systemic issues.
It makes clear that despite the delivery of innovative vendor-based solutions over the years to improve the post-trade environment, the industry has not embraced these functions on a wholesale basis. We argue that an urgent operational rethink is required beginning with further widespread adoption and increased use of the tools already available, as a prerequisite for firms to compete and succeed.
This series launches as the industry finds its way through the single most substantial regulatory decree in the history of the securities lending business in the form of the Securities Financing Transactions Regulation. We will subsequently look further into the future of securities lending in the following papers in this series and explore additional problems facing the industry in light of new regulations. We will delve deeper into the revolutionary technological developments already in build to solve for these industry-wide issues and reveal the strongest solution in the quest to bring true efficiency at scale to the industry.
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Supported by EquiLend, this white paper has been prepared by securities lending specialists Pierpoint Financial Consulting. The first in a series of three papers exploring operational efficiency in the securities finance industry, it covers the back story of the securities finance industry from the 1990s to the present day.
Securities finance in its 'modern' iteration has seen tremendous growth in supply, outstanding balances, and revenue generation. The dramatic rise in borrowing demand from hedge funds has fuelled an increase in prime brokerage services, drawing in investors attracted by the low-risk incremental alpha that securities lending creates each year from otherwise static portfolios.
However operational inefficiencies, high costs and resource requirements which plagued the market in the 1990s and 2000s have not improved in line with business expansion as might have been reasonably expected by informed observers, leading market participants and solutions providers. Developing operational efficiencies within the industry infrastructure is vital but Operations teams are often neglected within the ecosystem.
This paper describes the evolution of the operating framework in which securities financing transactions were carried out during the 1990s, recalling key roadblocks and the removal of some procedural inefficiencies with the progressive march of technology. It recounts the founding launch of Pirum and EquiLend in the early 2000s and the speed of uptake for both services, providing recognition of the industrial solutions required to address systemic inefficiencies. The paper establishes the reasons which restricted the post-trade world from keeping pace with the front-end while market expansion continued and why the easy solution of adding staff did not solve for more complex, systemic issues.
It makes clear that despite the delivery of innovative vendor-based solutions over the years to improve the post-trade environment, the industry has not embraced these functions on a wholesale basis. We argue that an urgent operational rethink is required beginning with further widespread adoption and increased use of the tools already available, as a prerequisite for firms to compete and succeed.
This series launches as the industry finds its way through the single most substantial regulatory decree in the history of the securities lending business in the form of the Securities Financing Transactions Regulation. We will subsequently look further into the future of securities lending in the following papers in this series and explore additional problems facing the industry in light of new regulations. We will delve deeper into the revolutionary technological developments already in build to solve for these industry-wide issues and reveal the strongest solution in the quest to bring true efficiency at scale to the industry.
