A growing number of buy-side firms are looking to overhaul and update their securities finance activities in response to changing market conditions and to capture new opportunities, according to Bill Foley.

The executive, who has worked at ABN Amro, JP Morgan and RBC during his career, set up his own specialist consulting practice, SecFinHub, last year.

Since then he’s been offering his expertise to a range of market participants, from agent lenders and prime brokers to trading venues and other service providers.

The bulk of his time, however, has been spent working with the buy-side, including sovereign wealth funds, asset managers and pension funds.

“The current pace of change across the securities finance business is unprecedented,” he told Global Investor. “This will continue to be the case for the foreseeable future, largely due to regulatory reform and its impact on market participants and drivers.”

Agent banks, responding to regulatory capital pressures, are looking to offer more flexible and creative solutions to their customers.

These include dynamic indemnification and fee split structures as well as exploring ways to allow customers to make loans on a peer-to-peer basis, manage their own cash collateral and clear trades in central counterparties (CCPs).

On the demand side, extendable structures on collateral transformation trades are popular as borrowers seek relief under Basel III’s liquidity coverage ratio (LCR) requirements, which require banks to hold sufficient high quality liquid assets (HQLA) to satisfy cash outflow needs over a 30-day stress period.

Meanwhile, a desire for greater transparency, largely in response to the growth of so-called shadow banking, has driven many of the regulatory reforms. Europe’s SFTR, for example, will eventually force firms to report their stock loan, repo and margin lending activity to a trade repository.

Rather than just looking to revisit their provider selection process through periodic RFPs or making minor tweaks to their lending program, Foley says beneficial owners are looking to fully re-evaluate their securities financing activity, sometimes making wholesale changes and considering what they should be doing to optimize their securities lending, repo and collateral and cash management programs.

This “blank canvas approach”, as he describes it, involves fully exploring all available routes to market based upon what suits their available assets, lending mandate and risk appetite. It also means considering how best to adapt their lending strategy and parameters to meet the evolving demand drivers.

“We have seen revenues from formerly lucrative transactions, such as European yield enhancement, erode in recent years," he adds. "Now the demand is driven by liquidity requirements and resource management which has seen an increase in collateral transformation and fixed term/extendable borrowing structures.

“Beneficial owners want to understand whether these types of trades fit into their existing programs and, if not, whether it is viable to make changes and what those changes should be.”

Liquidity, inventory management and collateral optimisation are also hot topics and a significant talking point for Foley when he interacts with beneficial owners.

“Wherever possible, the ability to look at all the assets available, both securities and cash, and consider all the areas where these can be utilised is critical to optimising inventory. Products such as securities lending, repo etc should then be considered as tools to be used as appropriate.

“Often, it’s a question of providing a “sanity check” or translating the drivers and requirements of each participant in the chain as each will have a different perspective.

“The landscape has changed and will continue to do so.” Foley adds. “The question is how do you adapt to take advantage. Clients appreciate my experience as a borrower and lender across a range of products, and an independent viewpoint. Hopefully, this will help them position their business for the future.”