EquiLend
As Mike Norwood takes over as global trading product owner at EquiLend, he talks through the challenges of remote working, how trends around the growth of electronic trading in securities finance have been over the last several years and what the future holds for innovation in securities finance technology
Tell us about yourself and what role you have taken on most recently?
I have recently taken over as global trading product owner at EquiLend. My responsibilities are the strategic direction of NGT and of our collateral trading product.
In terms of driving that forward, I am making sure that we are engaged with clients, making sure we have a handle on development enhancements, the strategy of where we are taking our product and our platform, and how we integrate with our clients and other EquiLend products as well.
It’s an exciting role for me. I’ve had the luxury of stepping into a successful product that is in really good shape. Roughly 63 percent of trades executed across the industry come through NGT today, which is a great spot to build from. Part of my initial remit is looking at how we can improve those figures, how we can continue to deliver additional value to our clients and how we can make the platform even more successful starting from a very strong position.
Previously, I was running the North American post trade group for EquiLend, responsible in the region for unified comparison, recalls, returns our other post-trade services, as well as supporting our Securities Financing Transactions Regulation (SFTR) service launch that we had in July.
What was your background prior to EquiLend?
I spent 12 years at Brown Brothers Harriman, all within the securities lending business. I worked across operations, recalls, settlement, and non-cash collateral. I then became a business analyst working with the trading team to actually implement some of the EquiLend products and other vendor products. Ultimately, I ended up there as head of product development and business technology, where I was responsible for setting our technology road maps, managing vendor technology relationships, and overseeing all product development activities.
What plans do you and EquiLend have in place for NGT in the coming year?
Given the industry adoption of NGT in the general collateral space in particular, an area of focus for us over the next year will be expanding automation and straight-through processing (STP) in the hard to borrow and fixed income spaces in particular.
Understanding that the impediment here is largely behavioural rather than technical, we plan to provide additional functionality that allows users to implement necessary controls and validations against hard to borrow securities in order to make it more appealing to take advantage of the existing functionality.
On top of that, we will introduce more transparency into the platform, giving users statistics and analytics around what is happening with their indications of interest (IOIs), availability workflows and orders. There are still too many trades being done manually for our market to be as efficient as it can be.
For us to help increase this efficiency, we are working with our users to understand what tools they require to embrace automation and focus on value-add activities. Beyond NGT, we also plan further enhancements to our collateral trading product, including STP capabilities and support for equity-for-equity baskets.
How has remote working affected your securities finance trading business and your transition to this new role?
Coming into the new role, NGT was already well established and widely used in the industry. We’ve seen volumes increase significantly on the platform since the pandemic. Just in March this year, there was a 50 percent increase in the notional value traded over NGT compared to last year. So it is a unique time to take over as product owner.
Firms are adjusting to this new environment and adapting to working from home. One way to achieve that is to rely on our automated tools, relying on that STP to get through as they adjust to dealing with fewer screens and constrained resources. Multi-tasking can be more difficult remotely, so allowing STP processes to run in the background and handle the bulk of trade executions frees you up to focus on your more value-add activities such as conversations with your counterparts, managing book levels, and staying on top of what’s happening in the marketplace.
How much has electronic trading in securities finance grown in recent years and what is it looking like today?
As of July, notional balances traded over NGT are up about 15 percent over the past two years. It has trended up steadily for several years. We are up 25 percent in terms of trade count over that same period. The performance of NGT throughout the pandemic has proven the value of electronic trading, both in regular periods and in times of market stress.
What are EquiLend’s market engagement initiatives?
I’m trying to connect with clients in my new capacity to understand their needs and understand any challenges they may have in optimising their use of NGT. I want to know ways we can improve and continue to deliver value. Personally, I helped implement NGT from a client perspective in my previous role. I am familiar with the technical challenges. From a business perspective, we are working with traders to identify ways that we can make their lives a bit easier as no one expects remote working to go away any time soon, unfortunately. There’s a benefit to working from home in terms of flexibility, but it can make it harder to do some things, so engaging and determining what we can do to help during this time is something I’m focused on. For the trades that are done off the platform in a manual way, either over the phone or via chat, we are assessing how we can help make negotiations of those transactions easier with automation.
We are committed to continuing to improve STP rates across the industry and evaluating whether there are any structural impediments to transacting over our platform, and if there are, what can we do to help resolve that.
For example, we have had significant success in terms of reducing break rates for trades that have been agreed over NGT. Historically, the break rate for trades negotiated manually, off-platform, that we see in our post-trade suite is between 25-30 percent. If you look at trades that are agreed on NGT and submitted to post-trade, the break rate is less than 1 percent. That is a drastic improvement.
However, by day three of a transaction, that 1 percent break rate can increase to a 20 percent break rate, and that’s down to the manual processing that currently exists once a trade has actually been executed.
We aim to bring those same efficiencies to the post-execution space, including lifecycle events such as rate changes, loan and return matching pre-settlement, rebooks, allocations, all the way through to corporate events.
The current post-trade paradigm in the securities finance market, which is focused on manually fixing breaks, is a very inefficient use of resources. We are working on bringing to the lifecycle management space the same efficiencies we brought to the market with the launch of NGT.
SFTR’s initial go-live is in the rearview mirror. What’s next?
We still have to get through the October implementation of SFTR, ensuring that the bilateral reporting works successfully, and making sure that we are partnering with our clients to address any concerns they have around the initial go-live of SFTR. We must work together to iron out any kinks in the process and reduce breaks to as low a level as possible. Beyond that, it’s how we make incremental improvements to the NGT platform for us to allow clients to receive additional benefits and put additional volume through it by reducing some of the technology hurdles they may face.
We are excited for what’s to come in 2021, where the new normal lands in terms of remote working and in-office working, and for the process transformation we will be rolling out for the market in the coming year.
