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June 4, 2007

Bill Comparison Made Easier

EquiLend Looks to Lessen Errors in Shorting Process

By Gregory Bresiger

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Securities lending consortium EquiLend is looking to simplify the lives of its members and their clients. This month, EquiLend expects to expand its bill comparison product, which it believes will streamline stock lending and make spotting errors easier. Bill comparison is a key product used by short sellers and others in the securities lending business.

A bill for a monthly securities lending account can contain thousands of pages. When brokerages and banks use securities lending services, parties and counterparties generate fees and rebates. The prime brokers and the custody banks are the main users of the EquiLend platform, which provides both pre- and post-trade services.

Big Deal

Bill comparison is a big deal in the securities lending business," Brian Lamb, CEO of EquiLend, tells Traders Magazine. So bill comparison interface will be easier to use, making discrepancies easier to spot. "What we're basically doing is improving that user interface," Lamb says. Matching, pros will attest, is how a trade can go bad.

"If bills don't match, there could be a billing discrepancy. There could be undercollaterization, or a corporate action, or an event that needs to go a certain way," Lamb says.

Lending is offered in equities and fixed income, but harmonization is one of the consortium's goals to help build the securities lending industry, EquiLend officials say. For example, today they boast that they offer the same platform regardless of asset class in some two dozen countries. Hedge fund clients see securities lending as a way of finding additional alpha, while long-term institutional investors see that securities lending promotes market efficiencies, Lamb says.

EquiLend Holdings is a seven-year-old consortium that came together to develop the equivalent of a good housekeeping seal of approval for securities lending. But EquiLend critics say the consortium was formed to protect the profit margins of the members through a virtual cartel.

Its competitors include giant interdealer broker ICAP and vendor SunGard, among others. SunGard once considered becoming a member of EquiLend, but discussions were unsuccessful. Lamb acknowledges that his firm is now butting heads with SunGard Data Systems, which has been the top player in this technology niche, with products such as Loanet and Martini.

Bill comparison services offered by securities lenders reduce problems in the monthly billing cycle. Without bills that match between lenders and borrowers, problems will follow. Fewer potential problems mean clients can confidently take on more leverage, according to Lamb.

Bringing Order

The service is an example of EquiLend's strategy to capture a bigger part of the $3.5 trillion global securities lending market: try to find a common securities lending standard that the biggest players will use to bring "order" to the business. EquiLend was born several years ago out of the industry's common needs as well as its limitations, say its founders.

"At that point, we had a rather fragmented transmission system, because all of us were developing our own technologies," says a veteran official of the 11-member consortium, who didn't want to be quoted by name.

"We came together in a marketplace that didn't have standards, and we created standards," Lamb explains.