GLMX
The regulatory landscape is evolving in ways that require the market to decide how technology will enable them to satisfy their obligations, while optimising how they execute their business. GLMX’s director of business development, Anish Patel, and securities lending product manager, Dan Long, sat down with SFT to discuss their expectations for the year ahead
How do you assess the current state of the market in terms of electronification?
Dan Long: From the perspective of a lender, the securities lending market has come a long way since I first started on the trading desk 24 years ago. The days of hand-writing trade tickets and faxing instructions have (thankfully) long since disappeared. However, there is still some way to go before the securities lending market can claim that it has fully embraced technology and digitisation.
I joined GLMX in 2022, having spent more than two decades as a securities lending trader — at BNY Mellon and then managing the trading desk at AXA Investment Managers. From my experience, there is still an unnecessarily large amount of trading activity being executed manually over voice, whether that be for asset classes such as government bonds or workflows such as non-GC, hard-to-borrow securities and post-trade lifecycle events. All of these are underserved by technology and are a perfect fit for the solutions that GLMX offers.
Anish Patel: I have a similar view, although from the perspective of a borrower. Before joining GLMX in 2018, I previously spent more than a decade on the fixed-income government repo desk at Credit Suisse and have had first-hand experience of the inefficiencies and pain points that manual interaction with trading counterparts can bring. As a borrower, sourcing collateral, either HQLA for the liquidity buffer or for short covering, need not be a complicated process to manage. However, this was predominantly accomplished using chat and emails. This was followed by manual booking and then the same manual interaction for any subsequent lifecycle event. This always struck me, similar to the incoming client flows, as an area ripe for electronification.
Long: Having sat in the seat as a user of technology in this market for many years, one thing that always struck me was how little had changed over that time in terms of technology and innovation. Ultimately, this is why so much pre- and post-trade activity was — and still is — performed manually. Various post-trade technologies emerged which help to manage the impact of this, but these help to identify problems after the fact rather than at the point of negotiation or execution.
This is one of the things I find most exciting about being at GLMX — having the opportunity to help drive innovation and change.
How is GLMX helping the market to accelerate the adoption of technology?
Patel: You need only to look at what has happened in the repo space to date. For trading desks, there has been a step change in how client business is now managed. What was almost entirely manually negotiated a few years ago is now increasingly managed electronically. In December, we announced a record balance of over US$2 trillion and our daily volume hit a new high of US$790 billion in early 2024. This reflects how GLMX technology has become integral to the client-to-dealer financing business.
From the origins of simple negotiation, it now covers price discovery, complex multi-stage and multi-variable negotiation and post-trade lifecycle management. These features are now available for lending flow too. What is then interesting for a borrower is to be able to manage incoming demand on one side, while accessing supply from lenders directly in the same screen.
Long: My remit since joining GLMX has been to build out the platform's securities lending offering, in terms of the functionality and user experience as well as the ecosystem of lenders and borrowers executing on the platform. It has been fascinating for me to observe the technology that has already been deployed with such enormous success for the client flow on the repo side.
However, that does not mean that we have simply repurposed our repo technology for the securities lending product. An enormous amount of my focus since starting at GLMX has been in collaborating closely with clients to understand their specific securities lending workflow requirements, as well as utilising my own trading experiences so that the engineering team we have at GLMX can realise the vision. As with repo, this means the lending features have been designed by traders for traders so that they can achieve real world value.
How do you see the market reacting to upcoming regulatory changes?
Patel: As always, the market is sensitive to how regulation will impact their business. Regulation that looks to improve transparency such as SEC Rule 10c-1 will naturally push manually booked activity towards platforms. We saw this dynamic play out with the second Markets in Financial Instruments Directive (MIFID II) and then the Securities Financing Transactions Regulation (SFTR) and I think this will be no different.
To be able to accurately report trading data, capturing all the details of what is agreed at the point of execution, is key. I think this is particularly relevant for the type of flows I engaged with as a trader — they need to be moved off chat and email and into a structured form where both sides have a single view of what is agreed.
Long: I think that the US T+1 accelerated settlement timeframe is front and centre right now. For this, management of post-trade lifecycle events such as recalls and returns is key. At GLMX, our view is that this needs to be managed in the same place as new trade negotiations. While there can be feeds in or out to manage the operational aspects, having the ability to immediately trigger and manage an onward action from the trading perspective — whether that be a borrower trying to locate recalled securities from another lender or a lender offering out returned securities to see where there is a bid — is very straightforward.
Patel: For me, being able to tie the different flows together is where the solution goes beyond solving for regulation and delivering real efficiency. For example, if you are short a bond as a result of being lifted by a hedge fund client, the ability to subsequently, perhaps even simultaneously, raise a borrow request to send to multiple lenders on the same screen becomes a powerful tool. With full integration, the need to book both trades in internal systems no longer exists, thereby saving time and all but eliminating the risk of booking errors and subsequently reducing fails along the settlement chain.
How important is integration into the wider technology ecosystem?
Long: It is vital. From my perspective, moving from a seat at a single lender to now speaking with multiple lenders across the street, it has been fascinating to see the range of technology deployed and also the disparity between the sophistication of each of their internal technology stacks. One thing that has become evident is that even where a given lender has a highly automated process for managing incoming requests, they can only solve for their side of the equation. If the borrower is still manually booking their side of the trade, then the benefits of full operational efficiency cannot be realised — this is where GLMX fits into the picture. To this end, we have already integrated several participants on both the lender and borrower side, with plenty more working through this as we speak. We have been working with a whole host of vendors to help accelerate this process too, meaning GLMX clients get plug and play benefits.
Patel: The connectivity into the vendor ecosystem was the key to the rapid growth phase in repo, especially when there was a critical mass with full lifecycle integration. Anecdotally, we heard from our clients that their operations teams were saving hours each day as breaks were virtually eliminated. This also reduced the need for separate post-trade matching.
What are your predictions for 2024?
Patel: I am bullish that the rapid progress we have seen in the repo space will translate to the securities lending arena. It is clear from my conversations with the borrower community that there is a desire to bring the range of workflow tools they enjoy when interacting with their repo clients to their dealings with the lenders. Right now, there is a bifurcation of experiences which is an increasingly glaring difference!
Long: The pace of change will accelerate. Regulation is focusing minds once again and, together with a growing desire to electronify more of the flow for efficiency reasons, this will act as a catalyst for the securities lending market to adopt and extend innovative new technology solutions such as those offered by GLMX.
