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.