Securities financing trading platform GLMX is looking to drive electronification in markets beyond repo, says Phil Buck, its managing director for Europe.

Buck says the company sees a potential “huge advantage” in developing offerings around securities lending, which shares some similarities with repo but is a fundamentally different product.

“From the start, the view of GLMX was that the area of financing, particularly secured financing, is one that is collectively not yet too far along the electronification curve. In addition to repo, there is securities lending, which is related and similar, but also a different business where people are lending to each other on a fee basis,” Buck says.

“This is an area we are building for right now.”

GLMX, a registered broker-dealer and technology provider, has a web-based platform that connects intermediary dealers in repo markets to their buy-side clients. The company has been a proponent of automation in this historically manual market, being among the first providers to offer a request-for-quote (RFQ) solution on its platform in 2016.

Last year, as part of the drive to expand its securities lending business, the company hired a 30-year veteran of the securities financing industry, former Credit Suisse managing director Rory Zirpolo. The company is also engaged in talking to clients about their needs in this area, he adds.

Buck himself joined GLMX in mid-2018 to help push its European expansion. He was fresh from a year off, but prior to that spent a combined 21 years at Anvil Software and ION Trading (which acquired Anvil in 2006)—11 of those as CEO of ION’s repo, securities lending and collateral management business.

When Buck started at GLMX, he and one or two others were the only ones working in the London office; it’s now eight people based out of a WeWork in trendy Hoxton, equidistant between GLMX’s sell-side clients on the Wharf and in the City, and its buy-side clients in the West End. The company’s development team is in the US, but the London office is equipped for sales and client onboarding functions.  

Buck says he envisions electronification as a curve: While equities and foreign exchange have been far along the curve for years, repo is still somewhere near the bottom. However, the drive to bring increased efficiency and automation to these markets is growing as the first phase of the Securities Financing Transactions Regulation (SFTR) comes into force in April. 

Stuart Campbell, head of trading at BlueBay Asset Management—a client of GLMX—says preparing for the regulation is a priority at his firm. “There has been a marked shift in the repo market toward electronic trading over the past few months, as firms prepare for the implementation of SFTR,” he says.

BlueBay’s repo flow has gone from completely manual to 99% electronic using GLMX, Campbell says, adding, “Not only do we now have an effective solution for SFTR, but we’re also benefiting from significant efficiency gains.”

Funding Alternatives 

Repo markets have been subject to more volatility in recent years, with a particularly dramatic example occurring last year when, on September 17, the cost of overnight funding in the market shot up to four times its usual rate. As our sibling publication Risk.net has reported, structural shifts were responsible for the stress, including a decline in banks’ excess reserves and the popularity of the Fixed Income Clearing Corporation’s (FICC’s) sponsored repo program, which concentrated business at a handful of banks and tilted the market toward overnight funding.

As a result of this volatility, and the fact that post-crisis regulation tends to punish short-term funding, banks like Goldman Sachs and JP Morgan are reportedly experimenting with total return swaps (TRS), which imitate repo without making banks take the capital hit. Assessing the potential of TRS will be a focus for GLMX in 2020, Buck says. The company is engaging with consultants to understand what it might be able to provide users in this space.

But GLMX is still focused on its core business of supporting repo markets, with sponsored repo emerging from the US as an impetus for innovation. In a sponsored repo transaction, a dealer sponsors its buy-side counterparty on the FICC cleared repo platform, allowing it to net transactions and reduce the impact on the dealer’s balance sheet. The program was expanded in 2017 to money market funds and since then has had a massive impact on the repo industry.  

GLMX added a feature that allows users to identify a repo transaction as sponsored or not, in order to route it to the right downstream systems, and Buck says he is starting to see take-up among users. Buck will now be looking to do the same thing for European markets, building connectivity to clearinghouses there.

At the same time, regulators are pushing for greater transparency and efficiency in repo markets, with SFTR set to be the most important regulatory initiative of 2020 in these markets. 

A lot can happen to a repo in its lifetime, Buck says: it could be re-priced if interest rates change, it must be re-rated, and so on. This is where operational difficulties come in for market participants, as they have to manually update that information, often closing out trades and booking new ones at the new price or interest rate. GLMX has introduced the functionality to allow users to book trades en masse and the dealers can accept them all at once.

“Repo has been a bit behind the [electronification] curve. People within that world are used to interacting in a particular way, which has been quite manual and relationship-driven and has not had any great stimulus for change. But that is there now: It’s certainly not all about SFTR or reg reporting, but I think the regulatory landscape is ultimately seeking to have more accountability and transparency in trading,” Buck says. “We have moved to a world where people need to do more with less in general and are trying to find ways of making things scalable. Electronification is a drive to do that without removing the important relationship element.”