Digital Transformation Webinar: The Train of Change is Coming, Be Prepared or Be Left Behind
Participants in the EquiLend Digital Transformation webinar said participants in the equity financing market should aim for small but meaningful improvements to their business systems and processes, rather than overhauling their entire infrastructure at the same time.
The virtual event this week brought together representatives from service providers and lending agents, including HQLAᵡ, Stonewain and State Street, as well as speakers from the International Securities Lending Association (ISLA) and the Risk Management Association ( RMA) to discuss their mutual interest in embracing the digitization of financial securities markets.
Topics ranged from the success of industry technology responses to Securities Financing Transactions Regulation (SFTR) to ISLA’s highly anticipated Common Domain Model (CDM), and much more.
Guido Stroemer, HQLAᵡ co-founder and speaker, began by advising audience members to target incremental gains that “alleviate the pain points” rather than seek “radical change”.
Another panelist, Nick Delikaris, Global Head of Algorithmic Trading at State Street and Co-Chair of the Financial Technology and RMA Automation Committee, elaborated on this point noting that in-house budgeting and prioritization will be easier. for small, short-term projects, rather than short-term projects. for a complete overhaul of archaic computer systems.
In response, David Shone, digital transformation consultant for ISLA, clarified that small “agile” changes are the way to go, but they must be part of a long-term strategy.
Discussing emerging and potentially disruptive technologies, panelists cautioned securities lending participants not to venture too far into the still largely unexplored waters of distributed ledger technology alone, as the potential for draining securities resources and opportunity cost are significant.
Instead, adventurous market players should seek consensus and, where possible, collaborate on their innovation to bring the industry on the journey with you.
Stroemer’s HQLAᵡ, for example, is a blockchain-based securities lending platform supported by Clearstream’s Digital Trust, an innovation center focused on exploring opportunities in emerging technologies.
The common domain model
CDM is at the forefront of innovations expected to impact the securities financing market in the near future.
The CDM was first launched by the International Swaps and Derivatives Association (ISDA) as a model of how derivatives are traded and managed throughout the lifecycle of commerce. The concept is now adapted by ISLA for securities financing transactions.
The modified CDM is currently in a pilot phase managed by REGnosys – the same fintech company that developed the version of ISDA – which will end this quarter. Once the pilot is finished, the MDP will enter a review phase.
Shone, who is assisting ISLA in its adaptation to the CDM alongside the association’s new digital working group, told audience members that the project will accelerate the standardization of documentation in securities finance transactions, which, in turn, will advance the push towards digitization.
While discussing the benefits of CDM for securities financing, Armeet Sandhu, CEO of Stonewain, noted that identifying areas of the market where innovation is needed is not the difficult part; the problem was to gain industry buy-in to tackle the problem en masse.
At this point, panel moderator Roy Zimmerhansl, practice manager at Pierpoint Financial Consulting, challenged established members of the industry not to rest on their laurels, or worse to actively resist change, because ” either the market can come together and create innovation, or a company will come in and do it on its own and leave people behind ”.
Carrot or stick?
Discussions revolved around whether the widely accepted success of the industry’s response to SFTR was a result of its mandated nature that focused minds on the task at hand.
Sandhu of Stonewain suggested that was the case. Ken DeGiglio, CIO of EquiLend, agreed that when it comes to requesting a budget, being able to point out a fixed implementation timeline and potential penalties for non-compliance made it easier the process.
Shone countered that it was not that simple, suggesting that the spirit of collaboration seen in industry working groups, such as ISLA and others, as well as the willingness of some large tech companies to playing a leading role, were also a major factor. .
DeGiglio wisely closed the discussion by suggesting that disruption is a case of “if” and not “when” and that viewing any opportunity to innovate not imposed by a regulatory mandate as “optional” would inevitably lead to stagnation.
