State Street Corporation has expanded on its direct access lending – which enables direct, principal loans between its lending and borrowing clients – to now allow borrowers to post US convertible bonds as collateral to facilitate new clients and strategies entering the programme.
The managed peer-to-peer product has grown substantially since its launch in the fourth quarter of 2019, adding new lending and borrowing clients to the US equity security lending programme and steadily increasing on-loan balances.
“Direct access lending has helped us continue to differentiate from our competitors by providing our clients the cost benefits of a peer borrowing model with the operational efficiencies received from a prime broker,” says Martin Tell, global head of securities finance. “In addition, providing our clients a peer option within their enhanced custody programme ensures stability as a trusted financing counterparty. The feedback from our customers has been very strong with the rollout of direct access lending, and we’re seeking to build upon the success we’ve had with this expansion.”
To facilitate the new collateral type in direct access lending, State Street will leverage both its agency lending and enhanced custody programmes, each of which already accepts US convertible bonds as collateral, to offer both sets of customers the benefits of each programme required to operate in a peer-to-peer transaction while also enjoying an economic benefit associated with direct access loans.
The same operational support provided today for equity-for-equity loans in direct access lending will be offered to customers engaged in equity-for-convertible bond loans to allow an increased economic opportunity for State Street clients without an increase in operational risk or burden.
“We expect significant uptake from both existing and prospective clients and are excited to continue building product capabilities into our best-in-class peer-to-peer programme,” says John McGuire, State Street’s global head of business development for securities finance.
State Street says its global markets team provides specialized research, trading, securities finance and innovative portfolio strategies to owners and managers of institutional assets. Its goal is to enhance and preserve portfolio values for clients through original flow-based research, proprietary portfolio and risk management technologies that optimize trading.