From the desk of John Arnesen
Consulting lead, Pierpoint Financial Consulting
I have a confession. Technology in securities finance used to bore me to death. Perhaps that's overstating it, but I used to become overwhelmed by any new system solution. Given all of its bells and whistles knowing that a) I wouldn't have the time, resources or inclination to commit to a deep dive into its functionality and b) we would never buy it.
Here is another confession. I had the added complication that at any major conference, the room of sponsors that made up of software solutions companies had the coolest free- to- give-away gadgets. The Conference Challenge: How was I to navigate the place to pick up a multi-regional conversion plug or a portable mobile charger without getting roped into an endless presentation of the wonders of a particular product? I mean, I need that portable charger! I hope some of you reading this are smiling to yourselves in recognition of your guilt in similar circumstances. If not, I'm a terrible person.
It's not entirely my fault. The first lending system I used back in 1990 was BLEND, as did almost everyone else as it was the only real option unless you built a platform internally. Users grappled with its limitations, but it got the job done to a certain extent in what was primarily a manual environment.
Fast forward several years and the platform I used was a 'version' of DML. I say version as my employer at the time had paid the owners to take the licence and radically develop it to accommodate the needs of the non-US business. The European activity had to deal with 'spot dates' multicurrency, 365- day basis for some bonds, forward settlement days, and the list goes on and on-far more complex than the USD only requirements it initially dealt with. A business deciding to do this does so because of its assessment that it is cheaper and faster to developing the missing functionality themselves. In most instances, nothing could be further from the truth. It is easy to say that in hindsight as it reflects my personal experience. Equally, having the external provider deliver all of the gaps in your needs isn't necessarily cheaper or faster. So it is against this background with dozens of hours reviewing product development documents, endless meeting with blushing colleagues explaining why it can't be' quite like we want it' that I lost heart in the entire process.
A lot has changed in my attitude towards this, however. Working with my colleagues at Pierpoint is a very different environment, and I have both the time and interest to invest in really understanding the merits of the various solutions available. The other change is the technology itself. No longer is it necessary to buy an all-singing, all-dancing system that may have capabilities that are redundant for your business instead today's environment provides the buyer via options for a modular-based solution that is priced accordingly. Then there is relevance. Over the years, the designers and developers of system solutions have increasingly become creative people who came from the business itself. Perhaps it was in recognition that the tools they were using had insufficient functionality, and they could create something better themselves. Previously, any attempt at this internally would have been thwarted by I.T. that probably reeled in horror at the mere suggestion you introduce any function, even a macro into the established system. It's not the fault of the I.T. teams either. They have strict protocols and policies that must be followed before anything is introduced across the mainframe and documented in triplicate. The wild west days where business heads often made system acquisition decisions left a horrible mix of incompatible legacy systems with the inevitable pendulum swinging too far the other way.
The choices available to any market participant in today's environment are far more precise in the issues they are trying to solve. I've mentioned Trading Apps in a previous blog, but I can't emphasise enough the impression the first full demonstration left with me. Why? Mainly because it solved for an inefficiency that all agents suffer in receiving a vast amount of locates in a disorganised fashion and creating a readable form via natural language processing (NLP). The speed at which this could occur and generate a response to the borrower was precisely the problem that needed solving. I had the same sense when engaging with Equilend's Autoborrow function, and later its Next Generation Trading (NGT) platform. Again, this solved an issue that was the heart of the creation of Equilend, which was how do lenders and borrowers move vast amounts of general collateral trades to each other in a more efficient manner? Of course, NGT goes way beyond this and provides a platform to negotiate with borrowers, target availability and a host of other functions, should you choose to utilise them. For me, this is key. With NGT ( or any other software application for that matter) a modular approach delivers an agile solution to users to take their business forward. There is no lack of options for those looking either to improve an existing function or even make a more significant overhaul of their capabilities. Pick up any industry publication and count the number of software-related adverts. We are in the fortunate position where software providers often reach out to us to demonstrate their products or ask for our input.
There is still some way to go, however. Securities lending continues to suffer from a number of clunky processes. The onboarding process, for example, remains a lengthy, manual process that lacks any meaningful automation as far as I am aware and has a real, daily impact on the business that borrowers and lenders can do with each other. The developer that provides a solution for this will have participants lining up. These solutions must be found if the industry is going to be in a position to embrace the inevitable arrival of dealing with tokenisation, digital assets and digital cash. After I became aware of HQLAx in January 2019 and learned what they were trying to do, I watched their progress with real interest-the first time a repo transaction would be executed via tokenisation. They even met their self- imposed deadline of December 2019 to conduct a live trade. The technology that has led to multiple providers offering solutions for the Securities Financing Transactions Regulation (SFTR) has brought with it the requirement for a high level of automation to a new process with incredibly tight deadlines. Regulation mandated this happen, but I can't help thinking that arising out of this effort, better solutions that address the industry's needs will follow.
The next time I attend a conference in person (hope springs eternal) it will be far more likely to find me in the sponsors' room engaged with a software provider with whom I'm less familiar. And I promise I won't give a second thought to that multi-port, mobile charger.