An app-titude for securities finance
05 January 2016
Getting the right technology solutions in place for today鈥檚 securities financing participant is paramount. Matthew Harrison of Trading Apps explains why
Image: Shutterstock
The securities finance market is undergoing a fundamental change, which can be seen in the increased focus on the net revenue generated on a trade-by-trade basis. This change is most prevalent in the general collateral market where broker-dealers are looking for alternative sources of borrowing as beneficial owners and agent lenders introduce hurdle rates to protect their return on equity. To counter this, market participants are looking for more complex technology solutions both internally and from securities finance vendors.
The increased cost for agent lenders to trade general collateral business means market participants must redefine their models to retain current revenues. The lender that can quickly and correctly differentiate between a general collateral and intrinsic value stock, and direct them to the appropriate beneficial owner in terms of risk-weighted asset (RWA) charges, trade collateral, and so on, will have a more attractive proposition for broker-dealers. There is a continued focus for broker-dealers to achieve an appropriate level of return on equity, and in order to do so, traders require the ability to calculate an implied cost of trade prior to execution.
Trading Apps believes that the market will transition rapidly in the way it uses technology in order for the participants to maintain market share and profitability. The need to execute, track and measure trades as regulation becomes prevalent and the increasing demands of profitability and transparency are pushed upon the organisation have never been stronger. This can be seen with the market鈥檚 continuing adoption of EquiLend鈥檚 Next Generation Trading (NGT) and the decommissioning of schedule-based AutoBorrow trading.
NGT aims to automate not only the general collateral space but also the warm and hot stocks. The absence of schedules causes another dimension鈥攏o longer will orders be approved or rejected, but rates will need to be either validated against thresholds or manually approved/negotiated via a front-end screen. The Trading Apps pricing engine gives the capability for straight-through processing and allows for the countering of a given rate, speeding up the lender鈥檚 capability to filter stocks, which will increase fill ratios and the lender鈥檚 market share. Trading Apps gives the ability to centrally manage your locates, create push lists for your long positions, easily view and cover your short positions, and optimise collateral through multiple sources, including NGT or Bloomberg messaging.
The Borrower App provides a single point for locates, relieving the trading desk of the manual requirements of monitoring responses from numerous sources, and more importantly, allowing the trader to identify the best offers based upon the implied cost of trade.
The Lender App can solve for the day-to-day locate, determine the category of locate, be it general collateral, warm or hot, and using its unique algorithm tool, direct the borrow request to afford the lowest implied cost of trade, thus making it RWA efficient. Our technology streamlines the process, without the firm dictating to the market the format to receive the requests, eliminating flashing Bloomberg messages going unanswered or NGT orders being timed out. With Trading Apps, the ability to negotiate your trades in a single system instead of switching back and forth between Bloomberg and your trading screens is a reality.
In summary, getting the right technology solutions in place for today鈥檚 securities financing participant is paramount. As market regulation continues to evolve and makes itself increasingly prevalent in your business, the requirement for technological solutions through integration and automation becomes inevitable. Trading Apps offers solutions that create interaction with multiple systems and information that satisfy the regulatory requirements and enhance the business and its revenues.
The increased cost for agent lenders to trade general collateral business means market participants must redefine their models to retain current revenues. The lender that can quickly and correctly differentiate between a general collateral and intrinsic value stock, and direct them to the appropriate beneficial owner in terms of risk-weighted asset (RWA) charges, trade collateral, and so on, will have a more attractive proposition for broker-dealers. There is a continued focus for broker-dealers to achieve an appropriate level of return on equity, and in order to do so, traders require the ability to calculate an implied cost of trade prior to execution.
Trading Apps believes that the market will transition rapidly in the way it uses technology in order for the participants to maintain market share and profitability. The need to execute, track and measure trades as regulation becomes prevalent and the increasing demands of profitability and transparency are pushed upon the organisation have never been stronger. This can be seen with the market鈥檚 continuing adoption of EquiLend鈥檚 Next Generation Trading (NGT) and the decommissioning of schedule-based AutoBorrow trading.
NGT aims to automate not only the general collateral space but also the warm and hot stocks. The absence of schedules causes another dimension鈥攏o longer will orders be approved or rejected, but rates will need to be either validated against thresholds or manually approved/negotiated via a front-end screen. The Trading Apps pricing engine gives the capability for straight-through processing and allows for the countering of a given rate, speeding up the lender鈥檚 capability to filter stocks, which will increase fill ratios and the lender鈥檚 market share. Trading Apps gives the ability to centrally manage your locates, create push lists for your long positions, easily view and cover your short positions, and optimise collateral through multiple sources, including NGT or Bloomberg messaging.
The Borrower App provides a single point for locates, relieving the trading desk of the manual requirements of monitoring responses from numerous sources, and more importantly, allowing the trader to identify the best offers based upon the implied cost of trade.
The Lender App can solve for the day-to-day locate, determine the category of locate, be it general collateral, warm or hot, and using its unique algorithm tool, direct the borrow request to afford the lowest implied cost of trade, thus making it RWA efficient. Our technology streamlines the process, without the firm dictating to the market the format to receive the requests, eliminating flashing Bloomberg messages going unanswered or NGT orders being timed out. With Trading Apps, the ability to negotiate your trades in a single system instead of switching back and forth between Bloomberg and your trading screens is a reality.
In summary, getting the right technology solutions in place for today鈥檚 securities financing participant is paramount. As market regulation continues to evolve and makes itself increasingly prevalent in your business, the requirement for technological solutions through integration and automation becomes inevitable. Trading Apps offers solutions that create interaction with multiple systems and information that satisfy the regulatory requirements and enhance the business and its revenues.
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