Insight
November 2024
CJ Emson
Fully Paid Lending with EquiLend Spire
EquiLend Spire: Simplifying Your Fully Paid Lending Program
Fully Paid Lending (FPL) presents a compelling opportunity for broker-dealers and their clients, offering the potential for additional revenue streams and passive income. Typically idle in client accounts, these shares can be loaned out, providing clients with additional revenue with low additional effort to generate fee revenue for broker dealers or agent lenders. For broker-dealers, for example, FPL can be a promising solution to generate income from shares fully owned by their clients, especially when traditional sources like margin stocks are depleted. However, initiating an FPL business can present significant challenges without the right technology and intelligence – mean that traditionally, much of this lending is done by specialist providers, rather than in house teams.
FPL – The Challenges of Realizing Untapped Lending Opportunities
One of the primary challenges of FPL lies in categorizing and managing accounts effectively. Properly identifying eligible accounts and maintaining them is a labor intensive task and the fees banks charge fees for managing these accounts adds to the administrative workload, raising the complexity of ensuring compliant FPL processes Regulatory requirements further complicate the process – the SEC have mandated the setup of individual bank accounts for each client involved in FPL to aid transparency.
Liquidity management and market fluctuations pose additional significant challenges. Broker-dealers must ensure that securities and funds are both available when required by clients by recalls or when clients opt out of the program, requiring meticulous planning and execution or a vendor solution to facilitate automation.
Firms embarking on FPL require a system which offers the flexibility needed to cater to the dynamic needs of the securities finance market, with real-time allocation functionality, auto reallocation or real-time recall of securities, communication opportunities and an in-built reporting suite.
The Market Need for an Efficient Solution
As market participants seek opportunities to generate alpha, Spire redefines the FPL landscape, offering a robust and comprehensive approach to FPL management. Broker-dealers require a system capable of handling the intricate details of account management, regulatory compliance and real-time allocation while also ensuring transparency and efficiency, Spire’s approach starts with comprehensive client eligibility and stock record management. Efficiently gathering and managing stock records for eligible clients, aggregating information at the security level and preparing it for the street ensures that all eligible shares are identified and ready to lend, maximizing revenue opportunities. Once live, Spire also manages pending trades and static data effectively, ensuring consistently accurate trade level information for the FPL client.
Spire’s real-time tracking and fair allocation of loans is a game-changer. It ensures that loans are fairly distributed across clients and tracks these allocations and accruals. Robust reporting and communication capabilities further enhance the effectiveness of this feature. Daily allocation tracking provides accurate and timely updates, while trade confirmations and detailed statements, which Broker Dealers can customize and automate, ensuring clients reporting is in-depth.
Collateralizing positions can be complex in any business. For FPL, this can be additionally complex due to the regulatory mandated need to keep client collateral in a separate bank account. Broker-dealers lending for fully paid for assets are required to obtain collateral in cash in the U.S., and cash or non-cash collateral such as Treasurys or other high-quality liquid assets (HQLA) in some other countries. Spire offers seamlessly integrated collateral management, providing tools to monitor, measure and obtain/record the initial, as well as top-up collateral. A data feed is generated at end of day, relaying the collateral figures to the bank. Spire offers a solution for seamlessly integrated collateral management, ensuring all transactions are secure and compliant with regulatory requirements.
What truly sets Spire apart is the ability to track two-sided transactions. Traditional systems typically track only one side of the transaction, Spire tracks both the street-view loan and street-side borrow, offering aggregated inventory at a granular level, providing detailed visibility of fully paid availability. This 360-view ensures greater accuracy and transparency in the FPL process. Spire provides comprehensive system connectivity to both trading and back-office processes, ensuring seamless operations from the trading desk to Ops team.
Spire’s automated reallocation and recall feature soothes the path, should a client opt out of the FPL program. Spire handles auto reallocation and recalls in real-time, ensuring a speedy unwind with minimal disruptions to the client or wider lending program. This dynamic management capability is a significant advantage in managing an FPL book.
In addition to managing active FPL participants, Spire also offers insights into accounts not opted into the FPL program. supporting broker-dealers in identifying potential lending opportunities to expand FPL programs and maximize revenue. Earnings distribution and client communication are managed efficiently by Spire, ensuring timely and accurate distribution of earnings to clients, investment advisers and agents. Trade confirmations are also communicated directly to clients, covering new borrows, returns, mark-to-market adjustments and more, with customizable delivery configurations.
Spire is a complete solution to the complexities and challenges of Fully Paid Lending. By addressing the intricate details of account management, regulatory compliance and real-time allocation, Spire ensures a seamless, transparent and efficient FPL process, offering broker-dealers a robust platform to maximize revenue while providing clients with a reliable source of passive income.
