Securities finance market participants should aim for small but meaningful improvements to their systems and business processes as opposed to overhauling their entire infrastructure at once, according to speakers at EquiLend’s Digital Transformation webinar.
The virtual event held this week brought together representatives from service providers and agent lenders, including HQLAᵡ, Stonewain and State Street, along with speakers from the International Securities Lending Association (ISLA) and the Risk Management Association (RMA) to discuss their mutual interest in embracing digitisation of securities finance markets.
Topics ranged from the success of the industry’s technological answers to the Securities Financing Transactions Regulation (SFTR) through to ISLA's highly-anticipated common domain model (CDM), and much more.
Guido Stroemer, co-founder of HQLAᵡ and panel speaker, began by advising audience members to target incremental wins that “chip away at pain points” rather than seeking a “big bang change”.
Fellow panellist Nick Delikaris, global head of algorithmic trading at State Street and co-chair of the RMA’s financial technology and automation committee, furthered the point by noting that seeking budget and prioritisation internally will be easier for smaller, short-term projects, rather than to comprehensive revamp archaic IT systems.
In response, David Shone, a digital transformation consultant for ISLA, caveated that small and ‘agile’ changes are the way forward but they must be part of a long-term strategy.
Discussing emerging and potentially disruptive technologies, panellists warned securities lending participants against venturing too far into the still largely-uncharted waters of distributed ledger technology alone as the potential for resource drain and opportunity cost is significant.
Instead, adventurous market players should seek consensus and, where possible, collaborate in their innovation in order to bring the industry on the journey with you.
Stroemer's HQLAᵡ, for example, is a blockchain-powered securities lending platform backed by Clearstream’s Digital Trust — an innovation centre focused on exploring opportunities in emerging technologies.
The common domain model
Chief among the innovations set to impact the securities finance market in the near future is the CDM.
The CDM was first launched by the International Swaps and Derivatives Association (ISDA) as a blueprint for how derivatives are traded and managed across the trade lifecycle. The concept is now being adapted by ISLA for securities finance transactions.
The modified CDM is currently in a pilot phase managed by REGnosys — the same fintech firm that developed ISDA’s version — which will conclude this quarter. Once the pilot is complete the CDM will enter a review phase.
Shone, who is assisting ISLA with its CDM adaption alongside the association’s new Digital Working Group, told audience members that the project will expedite the standardisation of documentation in securities finance transactions, which will, in turn, advance the push for digitisation.
While discussing the benefits of the CDM for securities financing, Armeet Sandhu, CEO of Stonewain, noted that identifying areas of the market where innovation was required was not the difficult part; the problem was gaining industry buy-in to tackle the issue en masse.
To this point, the panel’s moderator Roy Zimmerhansl, practice lead at Pierpoint Financial Consulting, challenged the industry’s established members to not rest on their laurels, or worse actively resist change, as “either the market can come together and create innovation or a firm will come in and do it on its own and leave some people behind”.
Carrot or stick?
Discussions turned to whether the widely-accepted success of the industry’s response to SFTR was a result of its mandated nature focusing minds on the task at hand.
Stonewain’s Sandhu proposed that this was the case. Ken DeGiglio, EquiLend’s chief information officer, agreed that when it came to requesting budget, being able to point to a fixed implementation timetable and potential penalties for failure to comply helped the process.
Shone countered that it wasn’t that simple, suggesting that the collaborative spirit that was seen in industry working groups, such as ISLA’s and others’, along with the willingness of some major tech firms to take a leading role, was also a major factor.
DeGiglio sagely closed the discussion by suggesting that disruption is a case of 'if' not 'when' and viewing any opportunity to innovate not enforced by a regulatory mandate as ‘optional’ would inevitably lead to stagnation.
