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 many analysts, although most participants view this as something that will occur in the distant future.
ICAP has launched their I-Sec stock lending platform and SecFinex has been majority purchased by NYSE Euronext. Giving one reason to think that the age of electronic bid/offer markets may not be so far off after all. The report explores 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 arguably offer all three features. 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.
Whilst all three of these factors together are likely to create success, it may only take one or two for a noticeable impact to occur.