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 without extra effort and generating 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 and the complexities involved in getting the endeavour up and running mean much of this lending is done by specialist providers, rather than in house teams.
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. Regulatory requirements further complicate the process, with the SEC mandating the setup of individual bank accounts for each client involved in FPL to aid transparency. Additionally, banks charge fees for managing these accounts adding to the overall set up. This increases the administrative workload and raises the complexity of ensuring compliance.
Liquidity management and market fluctuations pose significant challenges. Broker-dealers must ensure that securities and funds both are available when clients need them or when clients opt out of the program, requiring meticulous planning and execution or a vendor solution to facilitate automation.
Traditional FPL systems often exacerbate these issues, typically lacking real-time allocation functionality, auto reallocation or real-time recall of securities, minimal communication opportunities direct to client and a poor reporting suite. Firms embarking on FPL require a. system which offers the flexibility needed to cater to the dynamic needs of the securities finance market.
The Market Need for an Efficient Solution
The pressing need for a solution that can simplify and streamline the FPL process is undeniable. Broker-dealers require a system capable of handling intricate details of account management, regulatory compliance and real-time allocation, while also ensuring transparency and efficiency. This is where EquiLend Spire steps in, offering a robust and comprehensive approach to FPL management.
EquiLend Spire redefines the FPL landscape by addressing all of the challenges associated with traditional systems. 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.
EquiLend 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 customise and automate, ensure clients are well-informed.
Collateralizing positions can be complex in any business, for FPL, this can be additionally complex due to the need to keep client collateral in a separate account at a banking institution. Broker-dealers lending for fully paid for assets are required to obtain collateral in cash in the US 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 datafeed is generated at EOD to relay the collateral figures to the bank. Spire offers a solution for seamless 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. Most 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 trading desk to Ops teams.
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, providing data that can be monetized. This feature helps broker-dealers identify potential opportunities to expand their 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 communicated directly to clients, covering new borrows, returns, mark-to-market adjustments and more, with customizable delivery configurations.
Thus, EquiLend Spire stands as the ultimate 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. It offers broker-dealers a robust platform to maximize revenue while providing clients with a reliable source of passive income. With Spire, the potential of Fully Paid Lending is effectively harnessed, fostering a scenario that supports the growth and potential revenue opportunities for all parties involved.
Get in touch with us today for a demo by contacting [email protected].
