Electronic Bid/Offer Markets in Securities Lending

26 November 2007

Vodia Group has released new research on electronic bid/offer markets - the equivalent of exchanges or ECNs - in securities lending. The growth of these markets is predicted by almost every professional in the business, although most participants view this as something that will occur in the far future. Today, however, the momentum is building: key drivers of change are pushing for developed, transparent and accessible markets. ICAP has launched their I-Sec stock lending platform and SecFinex has been majority purchased by NYSE Euronext. There is reason to think that the age of electronic bid/offer markets may not be so far off after all.

This report covers how hedge funds, second tier banks and prime brokers, and central credit counterparties stand to change long-standing business practices in securities lending by encouraging the growth of electronic markets. A portion of the hedge fund market is looking for a combination of electronic access, transparency and data from securities lending providers; bid/offer markets offer all three characteristics. Second tier banks and prime brokers may see bid/offer markets as a way to gain access to greater liquidity and distribution. Central credit counterparties have the potential to level the playing field by removing relationship-driven aspects of the market, particularly in regards to account balances, credit quality and counterparty risk. While all three of these factors together are likely to create success, it may only take one or two for a noticeable impact to occur.

This report reviews ICAP I-Sec and SecFinex as current market operators and EquiLend and SunGard as potential entrants to the space.

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