Addressing securities lending market inefficiencies

Can you explain the current inefficiencies in the securities lending market and how BNP Paribas is addressing them?

To frame the conversation around efficiency, I think it is important to understand some of the main drivers of securities lending for the participants of a transaction. Beneficial owners and agent lenders want to generate incremental revenues on top of their main investment strategies via an ancillary, low risk, product. Prime brokers (borrowers) want to facilitate flows for their clients and internal needs for a multitude of reasons, but rely on having access to a wide scope of stable inventory to support these critical functions.

For these goals to be achieved, the efficient settlement of loans, returns and sales is a key contributor to the smooth performance of the market. Currently, the rate of fails is too high across the market and this has negative ramifications on all participants. Regulators are pushing for improvement in this field in the form of implementing regulations (e.g. CSDR) and market participants are stimulating improvements by being more selective on the counterparties they trade with.

At BNP Paribas, we have invested in the latest technologies and process improvements to enhance the efficiency of our programme. We see the key to efficiency being a simpler model to work with, reducing touch points where things can potentially go wrong, and ensuring as many things as possible are automated STP. Over the next 18 months, we are set to enhance our model to ensure we are well placed to adapt to any future developments that may come to the market.

What factors contribute to the persistence of inefficiencies in securities lending, and how does BNP Paribas tackle these challenges? A few elements have led to inefficiencies remaining despite the motivation to reduce or remove these entirely. One is the sheer volume of transactions, this has grown exponentially and the processes in place have not been able to keep up with the volumes. A second element is the lack of investment into the less attractive parts of the business. Over the years there has been a great deal of investment into the front-office automated trading platforms but less investment into the back-office functions, which is partly the cause of where the market is today. We are rectifying this by investing in a simpler, more efficient model, and utilising advanced technologies that can help us to automate as much as possible. The key for our platform is to ensure we have a robust foundation yet remain agile enough so that we can react to new developments and remain market leading in our offering. dedicated to the improvement of this system. It allows for a great deal of automation and on top of the improved operating framework, this system will allow for seamless interactions with the borrowing community while also offering an improved client experience for our beneficial owners. We believe a one-stop-shop where clients can manage their programme, see near to real time performance data, as well as robust risk and control monitoring, will help clients to truly optimise their agency lending programmes.

How does BNP Paribas collaborate to improve securities lending efficiency and transparency? What operational process optimisations have been implemented?

At BNP Paribas, we contribute to working groups across multiple industry bodies and organisations, and are happy to help push the market forward in the right direction for the benefit of all. We also want to help the fintech companies to continue to develop their offerings and enhance the products available to market participants. We are clear in our support for the offerings technology providers are developing, however we want to see more collaboration across the whole market.

One key area we would like to see more of is interoperability. For the market to truly be efficient, technology providers need to be able to work together, ensuring silos are not built or broken.

A further area to which BNP Paribas contributes to, is the development of the Common Domain Model (CDM). This initiative being driven forward by ISLA and ICMA, amongst others, will help to standardise data points and references to build a blueprint of processes and operational procedures. This could truly help improve efficiency across the market.

For the borrowing community, we are aware that the internal demands are ever-increasing and that the amount of point of trade data required continues to grow. The development of the platform will allow for more flexibility for our borrowers, so that they can see the information they want to see and we can set up any automated trading flows they require, including through external platforms or directly depending on what is required.

Andrew Geggus is the Global Head of Agency Lending at BNP Paribas, based in London. He has responsibility for the growth and strategic direction of the global agency lending business with a presence in EMEA, APAC and the US. Andrew is part of the Markets and Financing Executive Committee.

How does BNP Paribas use technology to mitigate risks and enhance efficiency in securities lending? Any specific platforms or solutions developed for this purpose?

BNP Paribas has a proprietary built system and part of the aforementioned investment is

Andrew joined from Northern Trust where he was most recently Head of Trading for the Asia Pacific region since 2017, in addition to being on the board of the Pan Asia Securities Lending Association. Prior to this Andrew held multiple trading roles across EMEA and APAC, having joined Northern Trust in 2014.

Prior to joining Northern Trust Andrew spent time in finance and research roles for a hedge fund and law firm in the city of London.

Andrew holds a BSc in Management and Economics from Loughborough University.