The new platform, scheduled to begin operations in 2002, will be designed to streamline and automate transactions between firms borrowing and lending securities, by introducing a set of common transaction protocols. The platform is expected to offer users increased speed and efficiency, with reduced cost and risk.
EquiLend will also create a repository of data from members’ transactions that can be used to produce a set of statistically significant and objective benchmarks for the industry.
Securities lending is a process where institutions with securities portfolios, including agent banks, pension funds, mutual funds and insurance companies lend selected securities to parties, generally broker dealers who have a need to obtain physical securities in shorter timeframes than normal trading permits.
Frequently this need arises in covering short positions in the market. This need is greater for securities that are in short supply, are heavily traded, such as those held by index funds, or are difficult to acquire, such as some international securities.
In today’s disparate operating environments, borrowers must typically communicate their interests through a variety of non-standardized communication methods to first find a security and then negotiates the terms with the lender.
Founding members of the consortium include:
- Barclays Global Investors
- Bear Stearns
- Goldman Sachs
- JP Morgan Chase
- Lehman Bros.
- Merrill Lynch
- Morgan Stanley
- Northern Trust
- State Street
- UBS Warburg
The founding institutions have committed equal contributions toward an aggregate capital investment of $40 million.
How it Will Work
Through the EquiLend platform, a borrower or lender has the option to initiate an order to one or many counterparties. Once an offer is located and the terms are agreed, EquiLend will match the parties’ settlement instructions and send a shared trade ticket to each of the participants’ proprietary trading and settlement systems.
EquiLend’s platform is expected to streamline manually intensive front and back-office activities throughout the transaction as well as reduce the number of failed trades in the settlement process.