At eSecLending we utilize a competitive blind auction to determine the optimal route to market/lending strategy for our clients’ lendable assets, whether through discretionary lending or agency exclusive trading. We strongly believe that until a portfolio is auctioned, it is difficult to get a true sense of what the portfolio is worth in the securities lending marketplace. The auction results provide concrete evidence of what borrowers are willing to pay for access to lendable assets and it helps clients make better informed decisions regarding lending allocations.
Our goal whether we trade via agency exclusives or via our discretionary lending, is to optimize securities lending earnings in accordance with each client’s particular risk/reward profile. It is important to note that with either trading strategy, we do not pool our clients’ portfolios and therefore we avoid any conflict where attractive client portfolios end up subsidizing the returns of other clients, which is common with other custodial or third party agents.
In eSecLending’s agency exclusive lending program, borrowers place guaranteed bids for exclusive access to a portfolio or sub-set of a portfolio via the auction. Assets are typically awarded to the borrower willing to pay the most while recognizing the client’s risk tolerance. The bids received in the auction offer lenders premium securities lending returns, which are guaranteed throughout the duration of the agreement, regardless of the amount on loan.
eSecLending is the market leader in the facilitation of agency exclusive arrangements, having auctioned over $2.5 trillion since inception and with approximately 60% of our business allocated to this route to market.
Agency exclusive trading should not be confused with direct exclusives where the beneficial owner lends directly to the broker/dealer without an agent in the middle managing the administration and providing indemnification to protect against borrower default.
In eSecLending’s discretionary trading program, securities are actively negotiated with borrowers daily, on a best efforts basis. Returns are driven by the securities lending demand and by the yield of any cash reinvestment vehicle, if applicable. Earnings are not guaranteed and fluctuate based upon loan activity.