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What Does the Future Hold for Securities Lending?

Traders Magazine Online News, April 1, 2019

Matt Wolfe

Strong personal relationships have always been a cornerstone of the securities lending marketplace. Market participants focus on developing a broad, reliable network of relationships, so they can be the first lender borrowers contact in the morning, or the first borrower to be offered hard-to-borrow securities by a lender. While strong relationships will always be important, there is a growing emphasis on data collection. Decisions are being influenced by data analytics. In my view, the future of securities lending will be data-driven and the leaders will be those that make the most effective use of data.

The Expanding Role of Data and Technology in Securities Lending
One of the catalysts driving an increased emphasis upon data is Securities Financing Transaction Regulation (SFTR) that is forcing market participants to make technology investments to collect data for regulatory reporting. The ability to collect more data and integrate systems across entities can make inventory more accessible. It's all about utilization.

An increased quality and breadth of data enables advanced data analytics, such as machine learning. There's little doubt that such a lucrative business (driving nearly $10b in revenues according to a recent DataLend announcement) is going to attract advanced data science.

Over the next few years, I expect we will see two technology changes in the securities lending space that will benefit beneficial owners: machine learning and distributed ledger technology. Firms and vendors have been investing in new technologies that could enable participants to apply machine learning in order to discover surprising and valuable insights.

For example, programs that can anticipate changes in the demand for securities enable firms to make more informed decisions about when to lend and rerate securities. Similarly, distributed ledger technology has the potential to not only improve the transparency for beneficial owners, but also to potentially enable them to take a more active role in their lending programs.

OCC believes that investing in technology to improve client outcomes will prove to be a wise decision in the securities lending marketplace. We are focused on technology that can give our clearing firms an advantage by improving their capital and operational efficiency, lowering their costs, and raising their utilization. We believe that distributed ledger technology has great promise for increasing efficiency, reducing reconciliation costs, and making stock loan programs more profitable.

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