How firms are choosing their securities finance execution platforms 

DEEP LOOK | Increased competition in the securities finance execution platform space has fuelled the debate on how best to balance the promise of enhanced functionality against the operational challenges posed by vendor diversification.

In his report ‘Going live: the paradigm shift in securities finance execution platforms’, Martin Seagroatt, senior consultant at Finadium posits that new securities finance execution platforms are expected to bring innovation and lower costs to the industry.

However, he also acknowledges that challenges in liquidity, interoperability and vendor onboarding must be factored in when making a go-live decision.

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The report suggests that there are already too many vendors to support the needs of the existing securities finance industry and that each new vendor requires a detailed onboarding process.

Firms’ platform priorities 

Firms typically approach platform onboarding with three key priorities, the first of which is connectivity and integration – the platform must seamlessly plug into existing technology infrastructure without creating custom development.

The second consideration is technology reliability and resilience. Firms are hyper focused on uptime records, disaster recovery capabilities and vendor risk management practices with unprecedented intensity.

The final (and most important) factor is liquidity depth across asset classes and geographies. Execution, quality and platform value ultimately depend on accessing a critical mass of counterparties.

Beyond these core factors, firms increasingly prioritise cost transparency, robust regulatory compliance and a user experience that empowers traders rather than impedes them, alongside overall platform capability explains Michael Norwood, director, global trading product manager at EquiLend.

“This includes seamless integration with data and analytics, post-trade workflows and regulatory reporting solutions,” he says. “The best platforms provide superior execution quality, comprehensive market intelligence and straight-through processing. Firms are sophisticated in modelling total cost of ownership and demanding clear ROI before committing resources to onboarding new venues.”

Plumbing considerations

Seagroatt observes that when onboarding to a new execution platform, anything alternative from a new provider can take a long time to integrate and build trust that the high throughput pipes necessary for post-trade integration work correctly.

Using execution platforms that work from the same data model can remove this headache and enable a faster time to market, with a closer interaction across the front to back office.

CACEIS’s due diligence prioritises operational resilience, transparent economics and seamless integration says Olivier Zemb, head of equity finance and collateral management.

“Firstly, we mandate proven cyber resilience, robust contingency planning and stringent data protection,” he adds. “Secondly, we demand clear pricing transparency and conduct a rigorous cost-benefit analysis, assessing existing user communities and fee structures. Finally, the platform must offer efficient onboarding and deep API-led connectivity with our internal systems, supported by strong, responsive IT partnerships and full compliance with relevant regulatory constraints.”

When deciding how many platforms to work with, one of the key questions firms have to consider is how best to balance the benefits of resilience and diversification against the need to reduce complexity by minimising their vendor footprint.

According to Zemb, relying on a single platform is no longer a viable operational strategy. His firm strikes a balance by mapping platform specialisations to its critical tasks and developing a clear backup protocol for each.

“The solution isn’t always to add more vendors or platforms,” he says. “It can involve internalising certain functions. Ultimately, it is about maintaining rigorous, ongoing vendor oversight – not just platform diversification for its own sake – to ensure resilience without unwarranted complexity.”

Consolidation vs diversification

Platform users have a clear preference for consolidated tools that provide access from a single location for everything required to handle daily responsibilities, suggests Norwood.

“This is now balanced against a risk and compliance requirement for vendor diversification and to prioritise automation over manual transaction processing,” he adds. “I expect most settle around a ‘primary-plus-contingency’ model where firms handle 70-80% of electronic flow through a dominant platform while maintaining a secondary platform for resilience or specialised use cases.”

This approach addresses vendor concentration risk – which boards now explicitly incorporate into risk frameworks – without fragmenting liquidity or creating operational overhead that outweighs benefits.

“Trading desks recognise that complexity increases error rates and operational risk,” says Norwood. “Equally important is the liquidity fragmentation concern – in securities lending, spreading order flow across too many venues reduces execution quality for everyone while increasing operational costs and burden as they manage to segment processes.”

Where the innovation opportunity lies

The drive for increased innovation in terms of execution service provision is never ending. But Norwood cautions that electronic trade execution can only evolve so far.

“The protocols and message structures fundamentally exist to handle almost all trades,” he says. “While we can certainly improve user interfaces and enhance the trading experience, the real limitation isn’t the execution layer itself as the messaging protocols are well adopted, mature and used to support equity and fixed income across all fee bands.”

In this context, true evolution requires innovation in messaging flexibility, specifically lower cost protocols that maintain the scale necessary for a market processing millions of trades monthly.

The genuine innovation opportunity lies in what comes before and after execution. On the front end, embedding real-time data and analytics directly into trading workflows provides users with access to market intelligence such as inventory availability, pricing trends and counterparty analytics, enabling more informed decision making at the point of trade.

Equally important are workflow solutions that action those insights – tools that combine real-time analytics with internal needs, available inventory and client mandates to make smarter automated decisions without manual intervention.

“Our roadmap is focused heavily on improving both the data that traders require to execute and the workflows that will enable users to more efficiently handle day-to-day responsibilities and free them up for value add activities,” says Norwood.

On the back end, integration with technologies such as DLT addresses post-execution operational hurdles. He refers to these innovations as removing friction that constrains industry growth and allowing the market to scale sustainably.

“The platforms that will win are not those with marginally faster execution, but rather those that provide comprehensive intelligence and operational efficiency across the entire trade lifecycle,” adds Norwood.

Removing the middle layer

Zemb reckons innovation is being driven by disintermediation and a focus on data utility and refers to a clear push to remove unnecessary intermediaries to reduce cost and latency. Furthermore, the value proposition is shifting towards real-time reporting and advanced data analytics, providing deeper insight into the execution process and the changing market.

According to Seagroatt, firms are considering the future evolution of securities finance execution

that may include a more exchange-like environment as emerging technologies and smart automation drive new operating models and a shift in trading patterns.

Execution is undoubtedly evolving to a more exchange-like environment, but market participants accept that this is not happening uniformly across all transaction types. Securities lending is experiencing gradual evolution toward exchange-like characteristics such as standardisation, electronification and transparent pricing, particularly for vanilla transactions in liquid securities.

Getting to a single rate per asset is challenging given the reinvestment spread – counterparty risk and RWA components are variable. The lifecycle element of a securities lending trade makes it different than traditional equity trading in that counterparts have prolonged exposure to each other, which brings operational efficiency and portfolio trading strategies into play. Not all inventory is the same. 

Regulatory impact

New regulations and risk frameworks demand a tailored approach, explains Zemb. “We are seeing a split emerging in the market,” he says. “An exchange-like environment will handle standardised, high volume transactions like general collateral and specials, where price is the primary driver. Conversely, customised, bilaterally negotiated arrangements will persist for upgrades, downgrades and financing operations, where bespoke parameters like collateral optimisation and regulatory capital ratios are as critical as fee levels.”

Central clearing represents a significant structural shift, with initiatives introducing centralised counterparty risk management and margin requirements that fundamentally reshape credit exposure and capital efficiency, says Norwood.

“I don’t think we will achieve a true exchange environment,” he adds. “Increased transparency through better real-time data, acceleration of clearing and regulatory reporting regimes such as SFTR and 10c-1a will push the industry towards a more exchange-like environment, but variability will always exist.”

Availability changes, risk appetites differ and not everyone believes that a central limit order book is the answer. For this reason, the future may lie in a hybrid of exchange-like mechanisms for standardised transactions coexisting with negotiated execution for complex arrangements.

The operating model implications are profound. Trading desks evolve from relationship-focused negotiators toward technology-enabled portfolio managers and algorithm supervisors, with premium shifting from execution skills to strategic decision making leveraging data science and quantitative methods.

“Technology investment requirements escalate dramatically and pricing transparency increases, compressing margins for intermediaries whose value proposition included information advantages, while liquidity dynamics shift toward winner-take-most network effects that make maintaining trading solutions increasingly complicated,” says Norwood.

In this environment, successful platforms will balance exchange-like efficiency and transparency with the flexibility securities lending’s diverse transaction types require. “Pure exchange models may struggle with complexity, while purely bilateral models lose ground to more efficient alternatives,” he concludes.