In the second post of our 3-part series on revamping stock lending, we’ll examine why customisation is increasingly vital and how legacy systems restrict flexibility. We’ll also look at how evolved platforms enable greater configurability.

Customisation in stock lending enhances the effectiveness, safety, and profitability of transactions for both lenders and borrowers, while also contributing to the overall health of financial markets.

In risk management, for example, customising the terms and conditions of a stock loan allows both the borrower and the lender to manage risk according to their risk profiles – whether that’s through specific collateral requirements, loan durations, and interest rates that align with their risk tolerance and investment strategy. 

Customisation also provides banks with the flexibility to meet the specific needs of different borrowers. For example, a hedge fund might require a stock loan for a short-term short sale, while a pension fund might lend stocks as part of a long-term income strategy. Customising agreements, meanwhile, allows both parties to better account for counterparty risk, taking into consideration factors such as creditworthiness and reputation.

For their part, lenders often have specific investment objectives or constraints. Customising the lending programme allows them to align the stock lending activities with these objectives, such as maintaining certain portfolio characteristics or adhering to ethical investment guidelines.

Finally, customisation can help banks operating across several different jurisdictions adjust to the different regulatory requirements and laws. Customisation helps in complying with these local regulations, thus avoiding legal issues and potential fines. 

Given the importance of customisation, rigid, legacy technology platforms are a significant barrier to affecting stock lending operations. Older systems often lack the flexibility to adapt to new market conditions or specific client needs. What’s more, they may not support the latest financial instruments, complex trades, or innovative lending strategies, limiting the ability to customise offerings.

Legacy systems can also raise the risk profile of banks, due to a lack of advanced risk management capabilities. This can make it difficult to accurately assess and manage the risks associated with customised lending arrangements, such as counterparty risk, collateral management, and market volatility. Outdated technology can lead to operational inefficiencies, such as slower transaction processing, manual interventions, and increased error rates. These inefficiencies make it difficult to tailor services to individual client needs and respond swiftly to market opportunities.

Fortunately, evolved stock lending platforms have arrived, led by Wematch’s own securities lending module. Leveraging Wematch’s proven track record of success and its deep domain expertise in securities lending, our stock lending platform digitises and automates workflows, replacing error-prone and slow manual processes with tools including smart matching, negotiation, and lifecycle management. 

As Wematch connects through one simple API, flexibility and customisation are deeply embedded in our solution. Using Wematch, firms can avoid the complexities of legacy systems with flexible integration that enables them to connect effortlessly with their partners. What’s more, our modern tech stack harnesses the latest advances in cloud computing, data analytics, API integration, and security best practices to deliver a truly agile platform, one that can keep up with fast-changing market demands.

The ability for banks to customise and flex in the stock lending market is only going to increase. Firms, therefore, face a choice: stick with legacy approaches with their rigid architectures and expensive manual workarounds or adopt evolved stock lending platforms that are agile to the core. Reach out to learn more.

Photo by: Avelino Calvar Martinez on Burst

The views and opinions expressed are for informational and educational purposes only as of the time of the writing/production and may change at any time. The material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.