You have been with eSecLending for over 20 years now. What are the most dramatic changes you have seen in the industry in that time?
I joined the securities lending industry and the business of eSecLending when we first started in 2000. I did not think that I would have 25 years in a particular career and industry, but it has been good and fruitful. There has been a lot of change. My perspective has always been more focused on the client, beneficial owner, and lender part of the market, and where I have also seen pretty dramatic change in the last 20 plus years.
The reason why eSecLending was founded originally was to have a differentiated approach to how lenders approach securities lending, to move away from the more traditionalist product and from the queued agency lending pool, and to look at their assets and lendable as a unique offering to the market. From the beginning, we built the business to best maximise and optimise a lender’s programme within the control that they wanted to have over the programme. That has had a dramatic evolution over the last few decades, where lenders, back then, would have treated securities lending as an add-on and as more of an operational custody-adjacent product, and they would have looked at the revenue as an offset to expenses.
The revenue is very helpful in that regard, but many have evolved to where they are now looking at lending and repo as financing products. Many of the largest and most sophisticated institutional investors are utilising the tools of lending a repo as a method to support their broader treasury management, balance sheet optimisation, and liquidity management functions across their organisations.
While many still use lending in a way to optimise revenue and returns, and take an intrinsically focused approach, many are also looking at it as a tool to support the broader investment needs of their organisation and how they can best implement leverage and liquidity solutions. So, it has definitely changed a lot, and where it sits within individual lender organisations has also evolved alongside that.
How is eSecLending positioned in the US market today? What is driving that success?
Our business is US-based, we operate out of London and have a global clientele. We have had a lot of success over the recent time in the Americas, both in the US and Canada. We are well positioned with a lot of the US and Canadian lenders, in part because many of them have shifted to looking at lending and repo, as a way to raise cash and use it as another funding mechanism for their broader plan purposes.
We are very well positioned to do that, as we do not have the same bank and regulatory capital constraints that many of the large agent lenders have, just by the nature of who they are as a bank entity and the regulation that they are under.
Our ability to support lenders on a very direct and individualised basis and allow them to run a directed agent programme where we are adapting and running a business and a programme to their specific needs, has well-positioned us. Our ability to run volume and balance-based business for them, and to satisfy those needs for leverage and liquidity, to be able to be more flexible, and ultimately to not have the same capital cost constraints that our bank competitors would, has differentiated our business pretty dramatically in the last 5–10 years, and even more recently in the last few.
Where are you seeing the biggest opportunities for clients at the moment?
It depends on the client and what their profile is: the assets they have, the opportunity they have based on what collateral they accept, what drives their decision making for securities lending, and what their objectives are. For those that are a cash-driven focused lender, there is a lot of opportunity if they can find ways to improve their risk weightings for the brokers. We have seen a lot of implementation of various solutions that improve the capital footprint of the lender, and essentially allow the lender to become more of a preferred counterpart to many of the bank counterparts — that has been a big opportunity for those clients that are a cash collateral-driven programme.
Outside of that, we see a number of opportunities for collateral trades that many clients are partaking in. Then, where there is more of an intrinsic-focused value, we continue to see and the market sees a lot of trading opportunities in Asia and some of the emerging markets. The implementation of newer markets; the reopening of South Korea in a more meaningful way post the short sell ban; and markets like Saudi Arabia and other Asian markets tend to have more demand.
Shifting back, domestically in the US, there is always interest when there are specials opportunities, and smaller caps continue to have opportunities there also. US corporates and a lot of high yield interest is still a big area of opportunity for lenders. Noting that we are speaking in May now, with the IPO season in the US, and some of the sizable ones that are anticipated with SpaceX or OpenAI or others, the market is very much looking forward to those events, and has a lot of expectation with the size and the magnitude of some of those IPOs. If they are added to the indices earlier, then hopefully there will be more adoption by the larger institutions in terms of ownership. It should be interesting to see how the year plays out in terms of trading and where specials lie, on the back of the IPO and other corporate events.
Independent agents like eSecLending are gaining in popularity as clients are increasingly moving away from the traditional pool model. Why is that?
We have seen that trend over the past 25 years. It is not for everyone, and there are still many lenders that I think are well suited to working with a bank agent lender or well suited to more of a traditional approach and a pooled programme. But the shift towards wanting to have more control and to run more of a directed agent style programme, is a trend among larger institutions. And with that, the agents, such as ourselves and some others, are very well positioned to build a programme and a profile that can best directly suit what the underlying beneficial owner is aiming to achieve with their lending activities.
We have had a lot of success over the last few decades but, early on, our independence and not being a bank was probably what the market sold against us. Now, what is interesting, especially with a lot of the regulation that came on the back of the financial crisis, we have benefited from that independence and from being a non-affiliated bank lender, a non-custodial lender, and one that is able to essentially meet the needs of what the clients ultimately want, and to be able to do that in a pretty flexible way.
The downside is, that type of business is less scalable. Where the custodians and the large banks benefit is they do have the ability to service hundreds and hundreds of clients in a uniform way, and that works very well for certain market participants. But where uniformity is not what is desired, that is where independent agents and those that have the flexibility to run a directed style programme for clients, do benefit. Ultimately, competition breeds more success and better programmes for the underlying lenders.
With over 20 years of perspective, what sets eSecLending’s culture and client relationships apart?
Trust is a big one. Trust does not always happen overnight, as you know from your business. We have known each other for much of that time. I remember in the early 2000s when you were also getting your business off the ground, and building out relationships with clients. It is what drives our business. Making sure that we are running programmes not for ourselves but for the clients, and demonstrating that to clients, day in day out, that we are ultimately there to serve their needs and to be fully aligned.
We are not a bank, and because we are independent, we have the ability to have full alignment with our clients, and that matters. It matters when it comes to decision making. It matters when it comes to contract negotiation. It matters when it comes to what trades they want done and what trades we are able to support for them. Trust and deep relationships are really what drives us. There are many people within our organisation that were with us at our founding, and some of us, like myself, are still here today and still enjoy the work we do and the client partnerships that we have.
Many of those partnerships run the full length of our business, but we have really benefited from bringing on new client adoption and new partnerships in the last number of years, and hope that we can grow those relationships in the decades to come, and keep that trust and partnership-focused, client mindset.
Looking ahead, what excites you most about where eSecLending and the US market is headed?
There is a tremendous amount of opportunity to continue to serve the needs of these large, sophisticated clients, but to do so in a way that really allows them to run their programme themselves. With where technology is today and where it is headed, the more that we can do as providers to put solutions and tools in the hands of our clients and support them through the legal framework, operational processing, settlement of activities, the risk overlay with indemnification and controls, is super important.
To allow the decision making and the reasons for trade execution and what is driving that to be directed or controlled or in the hands of clients, is really important. As we continue to grow and evolve with our clients and partner with them on how they want to see securities lending and their related financing activities managed, we are well positioned, and I am confident our clients are well positioned as well.
It is almost as if the next 20–25 years will be condensed into what is more like the next three to five to seven years, just given the pace of change and the speed of technology right now. Maybe we will both be around to see how it plays out in the years to come.
Next interview →
Broadridge
The shape of success
Image: Brooke Gillman 
