From market opportunities to future potential
29 September 2026
Market participants gather to discuss the key movements in the US market, from 24-hour trading in equity markets and regulatory transparency, to how digital assets are transitioning from pilots to adoption
Image: stock.adobe.com/Maksim Pasko
Panellists
John Fox, US Head of Market and Financing Services, Securities Services, BNP Paribas
Nehal Udeshi, Global Head of Securities Finance, BNY
Kayla Heinekamp, Senior Agency Equity Trader, Northern Trust
Ahmed Shadmann, Head of North America Equity & Credit Trading, Agency Lending, State Street
Reviewing securities lending activity in the US over the past 12 months, what notable trends have emerged and how have these affected your firm’s strategy?
Nehal Udeshi: Over the past 12 months, the standout feature of the US securities lending market has been robust revenue generation driven by a combination of elevated balances, highly concentrated demand for special names, and increased market volatility. In equities, performance has been less about broad market shorts and more about single-name specials, event-driven activity, supply-demand dislocations, and sector focus positioning. Initial public offerings (IPOs), M&A activity, corporate actions, and strong demand for AI-related names, have all supported US equity securities lending.
Within US corporate bonds, activity has remained constructive. New issuance, refinancing, credit hedging, and dealer inventory management, have all supported borrower demand. Corporate-bond lending also provides a more diversified opportunity set because demand can arise from market-making, relative-value trading, capital-structure strategies, and broader funding requirements. Increased portfolio trading activity has also driven corporate bond balances higher, reaching new records.
From a strategic standpoint, our focus has been on balancing scale and efficiency in general collateral while investing in data, automation, and inventory intelligence to maximise returns from specials. We are also increasingly viewing equities, corporate bonds, and collateral solutions as part of a broader financing ecosystem rather than standalone lending businesses.
Increased values across both equities and corporates have driven higher funding demand, which has been a key contributor to improved US government securities lending performance. Counterparties continue to show strong demand for collateral upgrades and non-traditional repo structures. Broader adoption of central clearing has helped the market absorb significant Treasury issuance while preserving capacity and limiting funding volatility. Market participants continue to expand their clearing activity ahead of next year's mandatory clearing requirements, further supporting liquidity and the overall stability of the US repo market.
Ahmed Shadmann: The past year has been defined by a combination of high market volatility, elevated short interest in selected sectors, and continued demand for balance sheet efficient financing solutions. We have seen increased utilisation driven by event-led opportunities, AI-related themes, IPO activity, secondary offerings, index rebalances, and corporate actions such as buybacks.
At the same time, borrowers remain highly focused on regulatory capital, funding costs, and collateral optimisation. Together, these dynamics have accelerated the industry's shift toward non-cash collateral structures, term financing, and other solutions that reduce balance sheet consumption. As an agency lender, our strategy at State Street has been to deepen borrower engagement, invest in automation and analytics, expand collateral flexibility where appropriate, and position inventory ahead of anticipated market catalysts to maximise returns while maintaining prudent risk and operational controls.
Kayla Heinekamp: Over the past 12 months, we have seen securities finance continue to evolve beyond a traditional short selling marketplace into a broader financing, liquidity, and collateral management tool. While AI-driven dispersion, elevated volatility, and event-driven opportunities continued to support specials activity, borrower behaviour was also shaped by capital efficiency, funding considerations, and access to high-quality collateral. Demand expanded across collateral transformation, exchange traded fund (ETF) financing, and fixed income lending as market participants sought more efficient ways to source liquidity and optimise balance sheet usage.
As a result, Northern Trust has maintained a strong focus on collateral flexibility, borrower diversification, and ensuring client inventories can participate in a broad range of financing opportunities. As capital and funding constraints play a larger role in market behaviour, operational agility, and efficient balance sheet deployment have become critical drivers of performance and differentiation across the industry. As such, we have worked with clients to help ensure they benefit from the continual market evolution.
What individual shares, sectors, or asset classes have been particularly vibrant in terms of securities lending activity? What have been the primary drivers of this?
Shadmann: Technology and AI have remained among the most active areas of the market, reflecting strong investor conviction on both the long and short side. Stocks associated with AI infrastructure, semiconductor supply chains, and emerging growth themes have continued to generate elevated borrow demand as market participants expressed differentiated views on valuations and future earnings trajectories.
We also observed strong activity in biotech, specialty finance, and select consumer names, often driven by stock buybacks, secondary offerings, merger activity, or company-specific catalysts. Beyond equities, collateralised financing activity and non-cash structures continued to expand as firms sought more capital-efficient ways to access liquidity.
More broadly, many of the most attractive lending opportunities were driven less by overall market direction and more by corporate events, index changes, supply dislocations, and relative-value trading strategies.
Heinekamp: Activity remained concentrated in a handful of high-conviction themes. AI-related technology and semiconductor names continued to generate significant borrow demand and specials activity, driven by debate around valuations, earnings durability, and the long-term beneficiaries of AI investment. Demand also remained elevated across EV, crypto-related, and other event-driven names, with SpaceX a standout following its IPO, becoming one of the market's largest securities lending revenue generators.
Outside of single stocks, ETFs and fixed income products were significant contributors to lending activity. HYG and LQD were actively utilised for rates and credit positioning, with demand supported by inflation uncertainty, interest rate expectations, and widening credit concerns. Demand for U.S. Treasuries also remained robust as borrowers sourced high-quality liquid assets (HQLA) through collateral transformation and other balance-sheet-efficient financing transactions. This helped mitigate some fee pressure when accepting international sovereign bond collateral as US dollar cross-currency basis swap opportunities continued to narrow. Across asset classes, the primary drivers were valuation dispersion, macro uncertainty, funding considerations, and the need to efficiently hedge, finance, or express market views.
Udeshi: Technology was unquestionably the standout sector over the past year. AI-related companies, particularly recent IPOs such as CoreWeave and Circle Internet, along with SpaceX, drove exceptional borrow demand due to limited float, elevated valuations, high short interest and significant investor conviction on both sides of the market. Infosys ADRs saw strong directional demand, while also being used by some investors as a hedge against long exposure to India IT. There was also continued demand in the electric vehicle and biotech sectors. Corporate-event names generated substantial lending activity through merger-arbitrage strategies.
Beyond individual names, ETFs and American Depositary Receipts (ADRs) remained active as investors increasingly used them for hedging and thematic exposure, especially during periods of volatility in technology and growth stocks. Event-driven situations including IPOs, lock-up expirations, secondary offerings, and index rebalances also created attractive lending opportunities.
Within fixed income, US corporate bonds continued to perform well, supported by new issuance, credit hedging, refinancing activity, and dealer inventory needs. We continue to see corporate bonds as a key growth area, providing a diversified revenue stream that is less dependent on a small number of headline equity specials.
The SEC announced that it will host a roundtable to discuss moving towards 24-hour trading in the US equity markets. What are the key drivers of this push, and how would this potential move impact US markets?
John Fox: The Securities Industry and Financial Markets Association (SIFMA), Financial Industry Regulatory Authority (FINRA), Securities and Exchange Commission (SEC), and National Securities Clearing Corporation (NSCC), are spearheading a larger group of US participants in proposing changes to the trading day. Their vision is a 23-hour trading infrastructure — initially for US equities — that would pause only around 20:00–21:00 EST.
Other institutions are prepared to operate five days a week, extending continuous trading into the overnight window.
Industry estimates suggest that volumes would rise modestly — approximately three to five per cent in the early stages. Nevertheless, hedge fund managers anticipate significant shifts in bid-ask spreads during the US overnight session, even if overall volume growth is expected to remain gradual.
Exchanges have highlighted numerous operational challenges, noting that the regulatory landscape is still evolving and that integration pathways are not yet defined. Corporate actions are expected to be the primary source of interruptions, and stakeholders will seek clarification on the associated cost implications. The most expensive element will likely be the transition to a ‘non-batched-data’ environment. Key questions remain about the impacts on liquidity providers, margin-model calculations, and overall market stability. Comprehensive assessment of these factors will be essential before implementation.
Udeshi: The primary drivers are globalisation of investment flows, increasing demand from international investors, retail behaviour, competitive market pressure, advances in trading technology, and growing expectations for near-continuous market access. The rise of digital assets and overnight trading venues has also increased pressure on traditional markets to offer greater flexibility outside of normal US trading hours.
Expanded trading hours could improve accessibility for global investors, provide more market flexibility, and allow markets to react more efficiently to overnight news and events. However, there are legitimate concerns around liquidity, price discovery, wider spreads, and investor protection during periods when participation is lower. These are key topics the SEC addressed in its roundtable.
For securities lending participants, a move toward 24-hour trading would require greater automation of locates, borrow recalls and returns, inventory management, margin and collateral processing, corporate actions, and risk controls. The opportunity is to support increased trading activity globally, but the supporting financing, settlement, and collateral infrastructure must evolve alongside the trading ecosystem.
Shadmann: The push toward extended or continuous trading reflects growing demand from global investors who increasingly expect access to US markets regardless of geography or time zone. Advances in trading technology, increasing retail participation, and the success of overnight trading platforms have also contributed to the momentum. From a securities finance perspective, 24-hour trading presents both opportunities and challenges. Greater market accessibility could improve liquidity and price discovery over time, but it will also require significant enhancements across clearing, settlement, funding, collateral management, corporate actions processing, and operational resiliency. Market participants will need to ensure that the supporting infrastructure can function effectively outside traditional market hours. While the vision is compelling, successful implementation will depend on maintaining market integrity, liquidity quality, and robust risk management throughout the trading cycle.
Recent regulatory initiatives are set to impact US securities finance markets, including proposed changes to 13f-2, 10c-1a, and Basel III. What core concerns or aspects of these regulations are top of mind for your firm?
Heinekamp: While the industry is supportive of initiatives that enhance transparency and market resiliency, the key challenge is ensuring implementation does not reduce liquidity or increase borrowing costs. Specific to Basel III Endgame and related capital reforms, the impact could be far more consequential from a market structure perspective. Our focus is on how increased capital and balance sheet requirements affect the economics of securities finance transactions and banks' willingness to intermediate liquidity. Higher capital costs have the potential to reduce balance sheet capacity, increase financing costs for borrowers, and concentrate activity among participants best positioned to absorb those constraints. In many respects, balance sheet capacity is becoming a valuable asset in its own right.
More broadly, Basel III reinforces trends already evident across the industry: a greater focus on capital efficiency, collateral optimisation, and the effective deployment of balance sheet resources. As a result, demand is gravitating toward high-quality collateral, collateral-efficient financing structures, and solutions that optimise capital usage for both lenders and borrowers.
Additionally, broader financing and repo markets are being impacted by easing capital requirements under changes to the enhanced Supplementary Leverage Ratio (eSLR), ahead of upcoming mandatory clearing. While the move to central clearing is a fundamental shift in improving the resiliency of repo and wider securities finance activity, it will not entirely remove market risk as leverage will still exist, while counterparty concentration may increase activity with fewer counterparties. The industry has historically adapted well to regulatory change, but the long-term challenge will be enhancing resilience without materially reducing market liquidity, financing capacity, or efficient risk transfer. Firms with robust infrastructure, flexible collateral frameworks, strong risk management, and efficient balance sheet deployment will be best positioned to navigate this environment.
Shadmann: Our primary focus is achieving the intended transparency objectives without unnecessarily impairing liquidity, increasing operational complexity, or discouraging market participation. Both Rule 10c-1a and Rule 13f-2 introduce significant reporting obligations that require considerable investment in data governance, technology, controls, and cross-industry standardisation.
Firms remain attentive to the cumulative impact of overlapping reporting regimes and the potential for unintended disclosure of proprietary trading activity. From a Basel III perspective, capital requirements remain a critical consideration because they directly influence balance sheet allocation, market-making capacity, and financing costs. Ultimately, the industry supports transparency and resiliency, but success will depend on implementation frameworks that are practical, globally coordinated, and appropriately calibrated so that market efficiency and liquidity are preserved.
Udeshi: Our primary objective around 13f-2 and 10c-1a is ensuring that greater transparency does not inadvertently reduce market liquidity or expose commercially sensitive information. The challenge is striking the right balance between regulatory objectives and preserving efficient market functioning, particularly in less liquid or highly specialised securities.
With 13f-2, the biggest risk is strategy leakage. Even where reporting is structured and aggregated, the industry worry has been that disclosure could still allow market participants to infer crowded shorts or proprietary positioning. That matters because securities lending works best when markets are deep and orderly, not when transparency changes behaviour in a way that reduces liquidity or increases squeeze risk.
With 10c-1a, the focus is more operational. Securities lending is not a simple cash equity trade; it involves lifecycle events, modifications, reallocations, and often omnibus-to-client allocations after execution. So the key issue is whether the reporting framework aligns with how the market actually functions. If it doesn’t, the risk is higher cost, heavier operational burden, and less efficient intermediation.
Operationally, the reporting requirements are complex because securities loans are frequently modified throughout their lifecycle. Firms will need robust data management and reporting frameworks to ensure accuracy and consistency. Implementation timelines have been extended, and it is expected that the SEC will likely propose substantial revisions to both 13F-2 and 10c-1a later this year. In the interim, the industry continues to advocate for a simplified end-of-day T+1 reporting regime with a more equitable distribution of fees.
With Basel III, our focus remains on capital efficiency. How securities financing transactions are treated from a capital perspective will influence pricing, borrower behaviour, and overall market liquidity. We want to ensure the final framework accurately reflects the low-risk nature of appropriately collateralised securities lending transactions. It is expected that the final rule will contain a more risk sensitive formula for calculating risk-weighted assets for repo-style transactions in comparison to the current standardised approach. Together with reduced risk weights for investment grade corporates, which includes most pension and investment funds, it should have a positive impact on capital.
Digital assets in securities finance is a topic of much discussion for the industry. Where and how are you seeing firms transition from pilots to adoption? How well prepared is the market for this evolution?
Udeshi: The main driver behind broader market adoption of digital assets is collateral mobility, with particular focus on the tokenisation of traditional assets. The tangible benefits of improved collateral mobility and enhanced asset utility have helped to shift the market away from pilots and towards scale and adoption. Following fast behind tokenised collateral, the tokenisation of loan securities is also building momentum, with firms focusing on the settlement of securities outside of traditional settlement cycle windows, thereby reducing liquidity buffers, and delivering more efficient inventory management.
While progress has been encouraging, the market is still in the early stages of adoption. Legal frameworks, custody models, interoperability standards, and regulatory clarity must continue to develop before digital assets become a mainstream component of securities lending operations.
Shadmann: The industry is gradually moving beyond proof-of-concept initiatives and into targeted production use cases focused on efficiency rather than disruption. We see progress in areas such as tokenised collateral, digital cash, intraday liquidity management, and streamlined settlement workflows; however, adoption remains constrained by regulatory clarity, interoperability challenges, legal frameworks, and the need for common industry standards. While the market is better prepared than it was several years ago, we expect broad adoption to occur incrementally.
Where are the strongest opportunities for US securities lending growth in 2027?
Shadmann: We see the majority of growth opportunities coming from capital-efficient market structures, collateral innovation, and technology. Excess collateral pledge, whereby lenders help reduce the risk-weight otherwise realised by borrowers, and central clearing solutions are becoming increasingly important as market participants seek to optimise balance sheet usage and operational efficiency. We also expect continued growth in non-cash collateral programmes and collateral transformation. At State Street, our work with State Street Associates is translating proprietary data and academic research into practical trading capabilities. Initiatives underway include securities lending fee-prediction models designed to identify potential fee spikes and improve pricing and inventory decisions, as well as corporate actions analytics covering events such as mergers, spin-offs, rights offerings, and dividends. We are also developing an Agency Lending eTrading agent within State Street’s internal iQ platform, enabling traders to query loan balances, inventory, and pricing more efficiently. These investments combine scale, human expertise, and advanced analytics to support better client outcomes.
Udeshi: The largest opportunity remains in event-driven equities, including IPOs, lock-up expirations, mergers, index changes, and other corporate actions that create temporary supply and demand imbalances. The ability to identify these opportunities early and efficiently distribute inventory will remain a key competitive advantage.
We also see substantial growth potential in US corporate and Treasury bonds. In corporates, continued issuance activity, increased credit market participation and growing demand for balance sheet-efficient financing solutions should support healthy borrower demand. In Treasuries, increasing financing activity, greater adoption of central clearing, and the continued evolution of collateral upgrade and liquidity-management trades are creating new lending and financing opportunities. As these markets evolve, market participants should increasingly think in terms of a full financing toolkit spanning securities lending, bilateral, and triparty repo, intraday liquidity, collateral transformation, and optimisation across internal inventory and external markets, rather than relying on any single source of liquidity.
Expanded routes to market, additional growth of central clearing counterparties and the transition toward 24-hour global trading for US equities and Treasuries, are expected to represent significant growth opportunities through 2027 and beyond. More recently, Cboe announced an expansion of its capabilities to facilitate the clearing of US securities, further broadening the range of available market infrastructure solutions.
At the same time, the NSCC Securities Financing Transaction (SFT) service is expected to continue its evolution beyond US equities, potentially extending into additional asset classes. Both initiatives provide meaningful benefits from a capital efficiency perspective while also enhancing market resilience through greater diversification of counterparty and operational risk.
Finally, automation, data analytics, and digital collateral solutions are expected to become increasingly important differentiators. Firms that can combine efficient general collateral execution with strong special coverage, sophisticated pricing, and scalable technology will be best positioned to capture growth opportunities in 2027.
Heinekamp: Looking ahead to 2027, we see the strongest growth opportunities in financing and collateral solutions that help market participants optimise liquidity, funding, and balance sheet usage. Demand for collateral transformation, HQLA-driven financing, and collateral-efficient structures should continue to grow as capital and funding considerations play a larger role in transaction economics.
We also expect continued expansion in ETF and fixed income lending, where investors and borrowers are increasingly utilising these instruments for hedging, liquidity management, and macro positioning. These markets provide a broader and more diversified source of lending demand beyond traditional equity specials.
Beyond market opportunities, advances in technology and AI have the potential to improve inventory optimisation, pricing, trading efficiency, and revenue capture. In our view, the most successful lending programmes will be those that combine diverse inventories, collateral flexibility, and the ability to leverage technology to efficiently connect supply and demand in an increasingly complex market environment.
Fox: Equities remain the most compelling asset class — and will continue to dominate in the near term — contributing close to two-thirds of total industry revenue. Consequently, sustained growth of equity inventory must be a core focus of any programme.
The IPO market delivered unprecedented issuance in the first half of the year, reaching levels not seen in over five years. This surge drove heightened demand and propelled equity-related revenues upward by more than 30 per cent year-over-year. Highest-yielding sectors — particularly consumer discretionary, energy, and information technology — warrant concentrated attention.
Securities lending operates as a contrarian strategy: market conditions that appear adverse can translate into premium revenue streams.
John Fox, US Head of Market and Financing Services, Securities Services, BNP Paribas
Nehal Udeshi, Global Head of Securities Finance, BNY
Kayla Heinekamp, Senior Agency Equity Trader, Northern Trust
Ahmed Shadmann, Head of North America Equity & Credit Trading, Agency Lending, State Street
Reviewing securities lending activity in the US over the past 12 months, what notable trends have emerged and how have these affected your firm’s strategy?
Nehal Udeshi: Over the past 12 months, the standout feature of the US securities lending market has been robust revenue generation driven by a combination of elevated balances, highly concentrated demand for special names, and increased market volatility. In equities, performance has been less about broad market shorts and more about single-name specials, event-driven activity, supply-demand dislocations, and sector focus positioning. Initial public offerings (IPOs), M&A activity, corporate actions, and strong demand for AI-related names, have all supported US equity securities lending.
Within US corporate bonds, activity has remained constructive. New issuance, refinancing, credit hedging, and dealer inventory management, have all supported borrower demand. Corporate-bond lending also provides a more diversified opportunity set because demand can arise from market-making, relative-value trading, capital-structure strategies, and broader funding requirements. Increased portfolio trading activity has also driven corporate bond balances higher, reaching new records.
From a strategic standpoint, our focus has been on balancing scale and efficiency in general collateral while investing in data, automation, and inventory intelligence to maximise returns from specials. We are also increasingly viewing equities, corporate bonds, and collateral solutions as part of a broader financing ecosystem rather than standalone lending businesses.
Increased values across both equities and corporates have driven higher funding demand, which has been a key contributor to improved US government securities lending performance. Counterparties continue to show strong demand for collateral upgrades and non-traditional repo structures. Broader adoption of central clearing has helped the market absorb significant Treasury issuance while preserving capacity and limiting funding volatility. Market participants continue to expand their clearing activity ahead of next year's mandatory clearing requirements, further supporting liquidity and the overall stability of the US repo market.
Ahmed Shadmann: The past year has been defined by a combination of high market volatility, elevated short interest in selected sectors, and continued demand for balance sheet efficient financing solutions. We have seen increased utilisation driven by event-led opportunities, AI-related themes, IPO activity, secondary offerings, index rebalances, and corporate actions such as buybacks.
At the same time, borrowers remain highly focused on regulatory capital, funding costs, and collateral optimisation. Together, these dynamics have accelerated the industry's shift toward non-cash collateral structures, term financing, and other solutions that reduce balance sheet consumption. As an agency lender, our strategy at State Street has been to deepen borrower engagement, invest in automation and analytics, expand collateral flexibility where appropriate, and position inventory ahead of anticipated market catalysts to maximise returns while maintaining prudent risk and operational controls.
Kayla Heinekamp: Over the past 12 months, we have seen securities finance continue to evolve beyond a traditional short selling marketplace into a broader financing, liquidity, and collateral management tool. While AI-driven dispersion, elevated volatility, and event-driven opportunities continued to support specials activity, borrower behaviour was also shaped by capital efficiency, funding considerations, and access to high-quality collateral. Demand expanded across collateral transformation, exchange traded fund (ETF) financing, and fixed income lending as market participants sought more efficient ways to source liquidity and optimise balance sheet usage.
As a result, Northern Trust has maintained a strong focus on collateral flexibility, borrower diversification, and ensuring client inventories can participate in a broad range of financing opportunities. As capital and funding constraints play a larger role in market behaviour, operational agility, and efficient balance sheet deployment have become critical drivers of performance and differentiation across the industry. As such, we have worked with clients to help ensure they benefit from the continual market evolution.
What individual shares, sectors, or asset classes have been particularly vibrant in terms of securities lending activity? What have been the primary drivers of this?
Shadmann: Technology and AI have remained among the most active areas of the market, reflecting strong investor conviction on both the long and short side. Stocks associated with AI infrastructure, semiconductor supply chains, and emerging growth themes have continued to generate elevated borrow demand as market participants expressed differentiated views on valuations and future earnings trajectories.
We also observed strong activity in biotech, specialty finance, and select consumer names, often driven by stock buybacks, secondary offerings, merger activity, or company-specific catalysts. Beyond equities, collateralised financing activity and non-cash structures continued to expand as firms sought more capital-efficient ways to access liquidity.
More broadly, many of the most attractive lending opportunities were driven less by overall market direction and more by corporate events, index changes, supply dislocations, and relative-value trading strategies.
Heinekamp: Activity remained concentrated in a handful of high-conviction themes. AI-related technology and semiconductor names continued to generate significant borrow demand and specials activity, driven by debate around valuations, earnings durability, and the long-term beneficiaries of AI investment. Demand also remained elevated across EV, crypto-related, and other event-driven names, with SpaceX a standout following its IPO, becoming one of the market's largest securities lending revenue generators.
Outside of single stocks, ETFs and fixed income products were significant contributors to lending activity. HYG and LQD were actively utilised for rates and credit positioning, with demand supported by inflation uncertainty, interest rate expectations, and widening credit concerns. Demand for U.S. Treasuries also remained robust as borrowers sourced high-quality liquid assets (HQLA) through collateral transformation and other balance-sheet-efficient financing transactions. This helped mitigate some fee pressure when accepting international sovereign bond collateral as US dollar cross-currency basis swap opportunities continued to narrow. Across asset classes, the primary drivers were valuation dispersion, macro uncertainty, funding considerations, and the need to efficiently hedge, finance, or express market views.
Udeshi: Technology was unquestionably the standout sector over the past year. AI-related companies, particularly recent IPOs such as CoreWeave and Circle Internet, along with SpaceX, drove exceptional borrow demand due to limited float, elevated valuations, high short interest and significant investor conviction on both sides of the market. Infosys ADRs saw strong directional demand, while also being used by some investors as a hedge against long exposure to India IT. There was also continued demand in the electric vehicle and biotech sectors. Corporate-event names generated substantial lending activity through merger-arbitrage strategies.
Beyond individual names, ETFs and American Depositary Receipts (ADRs) remained active as investors increasingly used them for hedging and thematic exposure, especially during periods of volatility in technology and growth stocks. Event-driven situations including IPOs, lock-up expirations, secondary offerings, and index rebalances also created attractive lending opportunities.
Within fixed income, US corporate bonds continued to perform well, supported by new issuance, credit hedging, refinancing activity, and dealer inventory needs. We continue to see corporate bonds as a key growth area, providing a diversified revenue stream that is less dependent on a small number of headline equity specials.
The SEC announced that it will host a roundtable to discuss moving towards 24-hour trading in the US equity markets. What are the key drivers of this push, and how would this potential move impact US markets?
John Fox: The Securities Industry and Financial Markets Association (SIFMA), Financial Industry Regulatory Authority (FINRA), Securities and Exchange Commission (SEC), and National Securities Clearing Corporation (NSCC), are spearheading a larger group of US participants in proposing changes to the trading day. Their vision is a 23-hour trading infrastructure — initially for US equities — that would pause only around 20:00–21:00 EST.
Other institutions are prepared to operate five days a week, extending continuous trading into the overnight window.
Industry estimates suggest that volumes would rise modestly — approximately three to five per cent in the early stages. Nevertheless, hedge fund managers anticipate significant shifts in bid-ask spreads during the US overnight session, even if overall volume growth is expected to remain gradual.
Exchanges have highlighted numerous operational challenges, noting that the regulatory landscape is still evolving and that integration pathways are not yet defined. Corporate actions are expected to be the primary source of interruptions, and stakeholders will seek clarification on the associated cost implications. The most expensive element will likely be the transition to a ‘non-batched-data’ environment. Key questions remain about the impacts on liquidity providers, margin-model calculations, and overall market stability. Comprehensive assessment of these factors will be essential before implementation.
Udeshi: The primary drivers are globalisation of investment flows, increasing demand from international investors, retail behaviour, competitive market pressure, advances in trading technology, and growing expectations for near-continuous market access. The rise of digital assets and overnight trading venues has also increased pressure on traditional markets to offer greater flexibility outside of normal US trading hours.
Expanded trading hours could improve accessibility for global investors, provide more market flexibility, and allow markets to react more efficiently to overnight news and events. However, there are legitimate concerns around liquidity, price discovery, wider spreads, and investor protection during periods when participation is lower. These are key topics the SEC addressed in its roundtable.
For securities lending participants, a move toward 24-hour trading would require greater automation of locates, borrow recalls and returns, inventory management, margin and collateral processing, corporate actions, and risk controls. The opportunity is to support increased trading activity globally, but the supporting financing, settlement, and collateral infrastructure must evolve alongside the trading ecosystem.
Shadmann: The push toward extended or continuous trading reflects growing demand from global investors who increasingly expect access to US markets regardless of geography or time zone. Advances in trading technology, increasing retail participation, and the success of overnight trading platforms have also contributed to the momentum. From a securities finance perspective, 24-hour trading presents both opportunities and challenges. Greater market accessibility could improve liquidity and price discovery over time, but it will also require significant enhancements across clearing, settlement, funding, collateral management, corporate actions processing, and operational resiliency. Market participants will need to ensure that the supporting infrastructure can function effectively outside traditional market hours. While the vision is compelling, successful implementation will depend on maintaining market integrity, liquidity quality, and robust risk management throughout the trading cycle.
Recent regulatory initiatives are set to impact US securities finance markets, including proposed changes to 13f-2, 10c-1a, and Basel III. What core concerns or aspects of these regulations are top of mind for your firm?
Heinekamp: While the industry is supportive of initiatives that enhance transparency and market resiliency, the key challenge is ensuring implementation does not reduce liquidity or increase borrowing costs. Specific to Basel III Endgame and related capital reforms, the impact could be far more consequential from a market structure perspective. Our focus is on how increased capital and balance sheet requirements affect the economics of securities finance transactions and banks' willingness to intermediate liquidity. Higher capital costs have the potential to reduce balance sheet capacity, increase financing costs for borrowers, and concentrate activity among participants best positioned to absorb those constraints. In many respects, balance sheet capacity is becoming a valuable asset in its own right.
More broadly, Basel III reinforces trends already evident across the industry: a greater focus on capital efficiency, collateral optimisation, and the effective deployment of balance sheet resources. As a result, demand is gravitating toward high-quality collateral, collateral-efficient financing structures, and solutions that optimise capital usage for both lenders and borrowers.
Additionally, broader financing and repo markets are being impacted by easing capital requirements under changes to the enhanced Supplementary Leverage Ratio (eSLR), ahead of upcoming mandatory clearing. While the move to central clearing is a fundamental shift in improving the resiliency of repo and wider securities finance activity, it will not entirely remove market risk as leverage will still exist, while counterparty concentration may increase activity with fewer counterparties. The industry has historically adapted well to regulatory change, but the long-term challenge will be enhancing resilience without materially reducing market liquidity, financing capacity, or efficient risk transfer. Firms with robust infrastructure, flexible collateral frameworks, strong risk management, and efficient balance sheet deployment will be best positioned to navigate this environment.
Shadmann: Our primary focus is achieving the intended transparency objectives without unnecessarily impairing liquidity, increasing operational complexity, or discouraging market participation. Both Rule 10c-1a and Rule 13f-2 introduce significant reporting obligations that require considerable investment in data governance, technology, controls, and cross-industry standardisation.
Firms remain attentive to the cumulative impact of overlapping reporting regimes and the potential for unintended disclosure of proprietary trading activity. From a Basel III perspective, capital requirements remain a critical consideration because they directly influence balance sheet allocation, market-making capacity, and financing costs. Ultimately, the industry supports transparency and resiliency, but success will depend on implementation frameworks that are practical, globally coordinated, and appropriately calibrated so that market efficiency and liquidity are preserved.
Udeshi: Our primary objective around 13f-2 and 10c-1a is ensuring that greater transparency does not inadvertently reduce market liquidity or expose commercially sensitive information. The challenge is striking the right balance between regulatory objectives and preserving efficient market functioning, particularly in less liquid or highly specialised securities.
With 13f-2, the biggest risk is strategy leakage. Even where reporting is structured and aggregated, the industry worry has been that disclosure could still allow market participants to infer crowded shorts or proprietary positioning. That matters because securities lending works best when markets are deep and orderly, not when transparency changes behaviour in a way that reduces liquidity or increases squeeze risk.
With 10c-1a, the focus is more operational. Securities lending is not a simple cash equity trade; it involves lifecycle events, modifications, reallocations, and often omnibus-to-client allocations after execution. So the key issue is whether the reporting framework aligns with how the market actually functions. If it doesn’t, the risk is higher cost, heavier operational burden, and less efficient intermediation.
Operationally, the reporting requirements are complex because securities loans are frequently modified throughout their lifecycle. Firms will need robust data management and reporting frameworks to ensure accuracy and consistency. Implementation timelines have been extended, and it is expected that the SEC will likely propose substantial revisions to both 13F-2 and 10c-1a later this year. In the interim, the industry continues to advocate for a simplified end-of-day T+1 reporting regime with a more equitable distribution of fees.
With Basel III, our focus remains on capital efficiency. How securities financing transactions are treated from a capital perspective will influence pricing, borrower behaviour, and overall market liquidity. We want to ensure the final framework accurately reflects the low-risk nature of appropriately collateralised securities lending transactions. It is expected that the final rule will contain a more risk sensitive formula for calculating risk-weighted assets for repo-style transactions in comparison to the current standardised approach. Together with reduced risk weights for investment grade corporates, which includes most pension and investment funds, it should have a positive impact on capital.
Digital assets in securities finance is a topic of much discussion for the industry. Where and how are you seeing firms transition from pilots to adoption? How well prepared is the market for this evolution?
Udeshi: The main driver behind broader market adoption of digital assets is collateral mobility, with particular focus on the tokenisation of traditional assets. The tangible benefits of improved collateral mobility and enhanced asset utility have helped to shift the market away from pilots and towards scale and adoption. Following fast behind tokenised collateral, the tokenisation of loan securities is also building momentum, with firms focusing on the settlement of securities outside of traditional settlement cycle windows, thereby reducing liquidity buffers, and delivering more efficient inventory management.
While progress has been encouraging, the market is still in the early stages of adoption. Legal frameworks, custody models, interoperability standards, and regulatory clarity must continue to develop before digital assets become a mainstream component of securities lending operations.
Shadmann: The industry is gradually moving beyond proof-of-concept initiatives and into targeted production use cases focused on efficiency rather than disruption. We see progress in areas such as tokenised collateral, digital cash, intraday liquidity management, and streamlined settlement workflows; however, adoption remains constrained by regulatory clarity, interoperability challenges, legal frameworks, and the need for common industry standards. While the market is better prepared than it was several years ago, we expect broad adoption to occur incrementally.
Where are the strongest opportunities for US securities lending growth in 2027?
Shadmann: We see the majority of growth opportunities coming from capital-efficient market structures, collateral innovation, and technology. Excess collateral pledge, whereby lenders help reduce the risk-weight otherwise realised by borrowers, and central clearing solutions are becoming increasingly important as market participants seek to optimise balance sheet usage and operational efficiency. We also expect continued growth in non-cash collateral programmes and collateral transformation. At State Street, our work with State Street Associates is translating proprietary data and academic research into practical trading capabilities. Initiatives underway include securities lending fee-prediction models designed to identify potential fee spikes and improve pricing and inventory decisions, as well as corporate actions analytics covering events such as mergers, spin-offs, rights offerings, and dividends. We are also developing an Agency Lending eTrading agent within State Street’s internal iQ platform, enabling traders to query loan balances, inventory, and pricing more efficiently. These investments combine scale, human expertise, and advanced analytics to support better client outcomes.
Udeshi: The largest opportunity remains in event-driven equities, including IPOs, lock-up expirations, mergers, index changes, and other corporate actions that create temporary supply and demand imbalances. The ability to identify these opportunities early and efficiently distribute inventory will remain a key competitive advantage.
We also see substantial growth potential in US corporate and Treasury bonds. In corporates, continued issuance activity, increased credit market participation and growing demand for balance sheet-efficient financing solutions should support healthy borrower demand. In Treasuries, increasing financing activity, greater adoption of central clearing, and the continued evolution of collateral upgrade and liquidity-management trades are creating new lending and financing opportunities. As these markets evolve, market participants should increasingly think in terms of a full financing toolkit spanning securities lending, bilateral, and triparty repo, intraday liquidity, collateral transformation, and optimisation across internal inventory and external markets, rather than relying on any single source of liquidity.
Expanded routes to market, additional growth of central clearing counterparties and the transition toward 24-hour global trading for US equities and Treasuries, are expected to represent significant growth opportunities through 2027 and beyond. More recently, Cboe announced an expansion of its capabilities to facilitate the clearing of US securities, further broadening the range of available market infrastructure solutions.
At the same time, the NSCC Securities Financing Transaction (SFT) service is expected to continue its evolution beyond US equities, potentially extending into additional asset classes. Both initiatives provide meaningful benefits from a capital efficiency perspective while also enhancing market resilience through greater diversification of counterparty and operational risk.
Finally, automation, data analytics, and digital collateral solutions are expected to become increasingly important differentiators. Firms that can combine efficient general collateral execution with strong special coverage, sophisticated pricing, and scalable technology will be best positioned to capture growth opportunities in 2027.
Heinekamp: Looking ahead to 2027, we see the strongest growth opportunities in financing and collateral solutions that help market participants optimise liquidity, funding, and balance sheet usage. Demand for collateral transformation, HQLA-driven financing, and collateral-efficient structures should continue to grow as capital and funding considerations play a larger role in transaction economics.
We also expect continued expansion in ETF and fixed income lending, where investors and borrowers are increasingly utilising these instruments for hedging, liquidity management, and macro positioning. These markets provide a broader and more diversified source of lending demand beyond traditional equity specials.
Beyond market opportunities, advances in technology and AI have the potential to improve inventory optimisation, pricing, trading efficiency, and revenue capture. In our view, the most successful lending programmes will be those that combine diverse inventories, collateral flexibility, and the ability to leverage technology to efficiently connect supply and demand in an increasingly complex market environment.
Fox: Equities remain the most compelling asset class — and will continue to dominate in the near term — contributing close to two-thirds of total industry revenue. Consequently, sustained growth of equity inventory must be a core focus of any programme.
The IPO market delivered unprecedented issuance in the first half of the year, reaching levels not seen in over five years. This surge drove heightened demand and propelled equity-related revenues upward by more than 30 per cent year-over-year. Highest-yielding sectors — particularly consumer discretionary, energy, and information technology — warrant concentrated attention.
Securities lending operates as a contrarian strategy: market conditions that appear adverse can translate into premium revenue streams.
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