SecFinex electronic securities lending platform to close

SecFinex, the securities lending multilateral trading facility, will close its doors. From Friday, the company will stop taking on new business.
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SecFinex, the securities lending multilateral trading facility (MTF), will close its doors. From Friday, the company will stop taking on new business and loans will be managed until they are closed.

“We believe a central counterparty (CCP) for securities lending will play a major role over the long term,” said a spokesman for NYSE Euronext, one of the company’s shareholders. “It will not be a high priority for the banks until there is a determined regulatory push and Basel III starts to impact capital requirements, which is not expected to happen for another year to 18 months. The model has struggled to gain traction in the current economic climate.”

For most long-only portfolios, securities lending has traditionally been seen as a relatively risk-free way of attracting incremental income, since the loans are collateralised. But with volumes down, sec lending providers have struggled to tempt businesses back into the market where bilateral relationships remain crucial, while complying with regulators’ preference to see more over-the-counter (OTC) activity move through centralised and transparent structures.

The latest development follows a strategic review by SecFinex’s shareholders, NYSE Euronext, Société Générale and ABN Amro.

“Following the review, it was determined that continuing to provide financial backing to the company no longer met with the shareholders strategic objectives,” added the spokesman.

NYSE Euronext declined to comment on staff impact.

SecFinex has offered its electronic platform for securities lending since 2000. The acquisition by Euronext of a 51% stake in the company in 2007 meant that it could expand its reach to markets such as Austria, Germany and Switzerland.

Earlier this year, Allen Postlethwaite, CEO of SecFinex, told The TRADE that securities lending volumes had dropped significantly since the 2008 financial crisis and revenues had been correspondingly hit.

“I don’t believe [volumes] recovered from that drop,” said Allen in the Q2 2011 issue of The TRADE. “It has been reported that trading revenues have dropped by 75-80%, while volumes are down at least 40% from 2008. People are looking for ways to try and repair that revenue.”

Reporting by: Janet Du Chenne, Global Custodian, an Asset International publication

Additional reporting by Richard Schwartz