Q&A with Nancy Steiker, head of business development, Americas, Pirum
Pirum has been servicing North American-based clients for many years. As the need for automation becomes more important in the securities finance market, Pirum’s expansion into the North American market is well positioned and timed to help clients improve their daily processes. As a market practitioner for over 15 years, I experienced firsthand some of the process inefficiencies, and the ability to work closely with clients to improve their processes is what attracted me to the role at Pirum.
How has Pirum expanded its North American presence?
When I joined, I was pleasantly surprised as to the extent of Pirum’s usage in the Americas where they are already supporting US domestic and international business. Due to regulatory changes (e.g. Dodd-Frank and Basel) and subdued market trading conditions, there is currently a laser focus on the cost of doing business which in turn leads to the need for more efficient trading and collateral management. As a result, US domestic clients who have historically used Pirum’s overnight comparison services are now actively engaged in using Pirum’s real-time services such as trade compare, marks, returns and exposure management. The appetite of US domestic clients to ensure post trade STP between counterparts and collateral venues has grown and we are seeing US domestic entities wanting to match the level of automation already achieved by the international businesses.
The securities financing industry is increasingly global, not only from a markets perspective, but within each respective institution. Firms are demanding increased transparency of deployed and available assets and collateral in a global and enterprise-wide manner. Having this view enables traders to make the best decisions from both a revenue as well as a regulatory standpoint. This has led to the breaking down of regional and product silos (and in this regard we have seen a strong uptick in repo and other fixed income-related business).
Institutions are increasingly seeing FinTech services as the most optimal way to solve these increasingly broad and complex challenges. Automation of post-trade processes not only reduces cost, operational risk and balance sheet usage, it also enables more time to focus on alpha generation be it through different trading strategies or market access solutions. When firms weigh up the buy vs. build options, they increasingly determine that a FinTech solution can be viewed as the most efficient especially for non-differentiating elements of their business and process flows.
What about Canada?
Canada is clearly a significant market in the securities lending market tapestry. Canada has over $1.2tn in assets lendable available with approximately $160bn on loan, with demand for Canadian government bonds strong as well as general liquidity provisions. The increase of automation and transparency on a global scale has brought more Canadian firms to the market looking to generate revenue through securities lending programs. We have absolutely seen this increase in activity and importance translate in the volume and activity of our clients. In many ways Canada has more similarities with the international markets than US domestic, so has been an ideal area for us to assist clients given our market share in post trade in the international space.
How has Pirum expanded into the Americas product wise?
The US domestic market has some functions that are specific to the US cash settlement market, Pirum has assisted this with the launch of its SPOConnect. This provides an automated, scalable, and centralized solution for managing all Security Payment Order (SPO) activity. The service is available to any area within an organization that process Security Payment Orders.
We have also built US tri-party connectivity for our clients. Pirum is able to assist clients in calculating and instructing requirements (RQV) for US domestic tri-party. Our tri-party RQV product at Pirum has seen an explosion in growth, with usage nearly doubling in two years to $1.4tn calculated daily, across 6,466 accounts and four tri-party agents (BNY, Clearstream, Euroclear and JPM). Full STP RQV calculation and submission to all agents has been a well-established product for our international clients, however, this is now also required for US clients due to changing market processes and regulatory change. The anticipated 15c3-3 amendment is likely to result in further growth in tri-party business for this region.
So collateral management is an increased focus for your clients?
Absolutely right, collateral management is front and center for pretty much every client we engage with. As a result, Pirum has introduced CollateralConnect which is a front-office solution providing enterprise-wide collateral management capabilities including projection, exposure management and improved efficiency. Subscribers can view a global record of all collateralized exposure, across all bi-lateral and tri-party relationships covered by Pirum.
Both borrowers and lenders are benefiting from real-time connectivity and STP capabilities to efficiently manage collateral - utilizing digitized schedules, eligibility checks and collateral requirement forecasting. There are pre and post-trade analytic tools available to identify efficiency opportunities.
CollateralConnect is well positioned to respond to the increased regulatory demands and drive for enhanced returns that the market is facing.
What about CCPs?
Pirum is built out and fully functional with Eurex CCP in EMEA. It has been well documented that a CCP allows clients to reduce their capital requirements while increasing their efficiency in the market place and we have enabled clients to make the transition from OTC trading, by building an effective gateway and lifecycle management process. OCC has been operational in the US for some time now, with clients putting billions of security lending transactions through the platform. With the addition of the newly announced DTCC CCP clients will have more options going forward on trades that can reduce the RWA on their balance sheet and these are absolutely on Pirum’s product development roadmap for the coming period.
What impact will SFTR have on the North American market?
I think this is where Pirum’s global footprint is really resonating with clients. Obviously, we have seen a lot of interest and made strong progress with the international participants, however, what has been surprising to me is the extent to which traditional US domestic only participants are asking for information and services. I have no doubt that SFTR will have a global impact, and that is why in our partnership with IHS Markit we have built a global solution. It is interesting to note that just because an institution may be out of scope, if they are trading with an in-scope entity there is a requirement to exchange data. Firms that have adopted our core SFTR product have done so as they do not want to negatively differentiate themselves by not having a robust data exchange solution.
What impact will CSDR have on the North American market?
Although I believe the North American market is aware of CSDR and the associated implications, perhaps CSDR has not received as much attention or press as other regulations to date. Since joining Pirum, I have begun to realize the scope of CSDR and have no doubt that it will inevitably pose numerous challenges for securities finance participants, not only those domiciled in the EU, but globally.
In September 2020 all transactions which are intended to settle on an EU/EEA CSDs (regardless of where the trading entity is domiciled) will be in scope of CSDR, which could result in penalty fines and mandatory buy-ins. As with SFTR I think Pirum’s global footprint is resonating with clients who realize that it is vital that firms utilize tools that are currently available to mitigate economic and reputational impact. Pirum has several existing modules that will assist clients in mitigating the aforementioned impact and are currently working closely with clients to enhance current modules and discuss potential additional solutions to assist the workflow even further.
What are your concluding thoughts?
What has surprised me most since joining Pirum is the level of activity and output the team put into meeting clients and the market’s evolving demands. So, whilst we have a lot going on, with the high calibre team assembled, in my opinion Pirum are ready and able to meet our clients’ needs. I look forward to adding to this as we continue the deep dialogue with clients to assist their complex needs in North America.