In recent years we have seen significant growth in private investor participation in capital markets, according to Anup Patel, Head of Customer Success. “Technology has made trading and other investment practices accessible and simple to manage, and now it’s happening in the securities lending space too.”

Securities lending (also known as stock lending) isn’t new, it’s been around for decades, utilized by large financial institutions. “Instead of having securities sitting idle, collecting dust, financial institutions put their assets to work, generating lending income to offset custody and other fees, and increase returns thereby appearing more competitive,” he says. “But many private banks don’t have the capacity, resources or infrastructure to offer securities lending.”

Launching a fully-paid securities lending solution

“High barriers to entry make building and launching a fully-paid securities lending program in-house almost impossible for some private banks,” explains Anup. “Budget, resource and expertise, risk mitigation and the evolving regulatory landscape are just some of the considerations when developing a securities lending program.”

Private banks looking to add fully-paid securities lending to their offering also need to consider the variety of client needs, says Anup. “Wide adoption of new services only occurs when clients have full visibility and control over their assets. The process of opting-in or opting-out, choosing which securities to lend as well as acceptable collateral – it’s all about providing a great user experience.”

Value over volume

Depending on the portfolio and investor type, private bank clients could generate significant returns. “While no investment activity is without risk, loans of some securities can generate lending income well above 100 basis points annually – these are called specials”, he says. “Some stocks, bonds and even ETFs – deep specials – can deliver significantly higher percentage returns. These returns depend on demand and performance, but not exploring this opportunity may leave money on the table”.

“When it comes to securities lending it’s not always about maximizing lending volume. For clients of private banks in particular, it’s the deep specials where we really see revenue growth. The beauty of securities lending is that, when in high demand, one or two stocks can generate positive returns.”

To find out how much revenue you could be generating through securities lending, get in touch.