Generating additional revenue in the securities financing business which is rapidly homogenising has become much harder especially in a period when risk and compliance are the primary questions in developing any piece of business. In some cases banks which have Agent Lending, Principle Equity Finance and Repo Desks might be missing an opportunity to enhance overall firm wide returns by leveraging trading opportunities between internal desks.
It is often the case that for historical and obvious P&L reasons each business sees the other as more akin to an external competitor than part of the same organisation and any trading which does occur is often booked manually by desks which keeps volumes low.
When the Repo desk and the Principle Equity Finance desk are searching the market for equities or bonds logically their first port of call should be the in-house Agent Lending desk which might have availability. Significant basis point savings from internal borrowing can quickly have a high level impact on revenues, why shouldn’t the Principle or Repo business be a major customer of the Agent Lending desk? Giving the Repo and Equity Finance desks the ability to trade with each other on an automated basis also opens up opportunities for collateral upgrade trades and other cash orientated firm financing opportunities.
In many cases each business has different vendor or proprietary legacy system architecture which means there is no obvious method or functional process to enable trades to process across businesses into each others respective systems. Static data differences in the way counterparties are setup or how trades are margined differently can also make mapping trades across the businesses a complicated affair.
However MX Consulting has overcome these obstacles in previous client projects to enable disparate businesses to trade on a high volume STP basis. If not already setup the first thing to do is to develop the functionality to broadcast the availability of the Agent Lending business to the Equity Finance and Repo desk. Similarly the external availability of the Equity Finance desk fixed positions can be broadcast to the Repo desk and visa versa (where counterparties availability is not the same).
To counteract the different systems and setups the use of a messaging bus to map and manage trades originating in the front end trading systems is a way to bring efficiency to the process. A GC rates table can be agreed and created which enables GC trades to automatically find the correct rate based on the trades value which removes the requirement to negotiate except in the circumstance where a trade is flagged as special. When an Equity Finance or Repo trader sees availability that the Agent Lending business has he can enter the trade into his system which generates a message to the messaging bus which manages and maps the order over to the Agent Lending business. Confirmation or rejection of the trade by the Agent Lending desk is then managed back to the Equity Finance or Repo desk system.
If required a web based front end can give traders and operations the ability to see the status of the trades between different businesses front end systems. By joining- up diverse businesses and leveraging capabilities this can help to present a more consistent and complete offering to clients giving credence to the oft used term in marketing of clients benefiting from organisations internal synergies.