eSecLending
How is the recently announced partnership between OCC and eSecLending a good fit for both parties?
We have a proven expertise in securities lending auctions and auction technology, having auctioned over $2.9 trillion in assets since inception across a global and diversified client base including pension plans, insurance companies, asset managers, mutual funds and now central counterparties (CCPs). Expanding our reach to attract more clients via a hosted auction service is a natural extension for us.
One example is our new asset liquidation platform, Auction Platform Services (APS), designed to appeal to a broad range of financial institutions interested in conducting their own auctions. CCPs and exchanges, for example, are finding the technology particularly helpful as a risk management utility. The Options Clearing Corporation (OCC) uses APS as an efficiency tool that dramatically reduces the administrative burden of conducting their own clearing member default liquidations and periodic stress testing.
Other institutions are attracted to the audit, compliance, reporting and post bid analysis functionality that helps with a more orderly decision making process. Regulators, in particular, are interested in how firms are dealing with fire sales and distressed assets—adding technology is one way to help firms cope with these various stresses.
Would you regard auctions as the firms main strength, and are you looking to expand beyond them?
We are a unique company, but our auctions are not solely what makes us unique. We are the only independent securities lending agent provider in the marketplace; we are not affiliated with a broker-dealer or a custodian bank, so can make unconflicted decisions.
In some of our auctions, not all of the exclusive bids are accepted, similar to an art auction where a painting that does not hit its minimum bid, or a bid that is reasonable to the auction house, is pulled out. We do that too. After an auction we perform a detailed analysis and discuss with the client if there is enough of an auction premium for each lot, or whether some lots may be better traded as a discretionary portfolio.
We take a highly consultative approach with our clients, which can be experienced during our auction process—both in planning the auction strategy and analysing the bids to determine the optimal result to best meet their risk/return goals. Clients are able to see evidence of wide price dispersions that still remain in the market for many portfolios due to different demand structures for the same assets, from different players.
There are many reasons why varying demand for a portfolio, or subset of a portfolio, may exist. For example, one borrower may have an interest in an emerging market portfolio and make a bid that significantly outperforms the rest of the market. This could be due to them having a large hedge fund client in the region that they are trying to support, or the fact that they may be building a business in that region so they want to have exclusive inventory.
This is all part of our highly customised service-orientated model. We partner with our clients in a different manner than most of the larger custodians and we are able to do that because we have fewer of them—but that is a good thing as it allows us to be highly attentive and responsive to their specific needs. Our type of service model also allows us to offer clients the opportunity to have one of our staff on-site at their office on a temporary or permanent basis, at our expense—an offer that many clients over the years have greatly valued.
Our firm is doing a lot of work in emerging countries. We recently auctioned a portfolio from Malaysia, which is a newly approved lending market for us, and are also actively working to get into the Brazilian market by auctioning or lending on a discretionary basis. Growth and demand in these markets has provided a lot of value to clients, so we are giving them our keen attention for the immediate future.”
