Anetics, Inc.
Rob Sammons
26 June 2012
SLT talks to Rob Sammons of Anetics about automation, technology and future regulation
Image: Shutterstock
What鈥檚 the most interesting thing that you heard at the CASLA conference?
It was interesting to hear that Canadian brokers may be required to provide an official short-sale locate prior to accepting a customer order to sell a stock short. This appears similar to be similar to Regulation SHO in the US, and other initiatives that are popping up globally. Though one would think that even in the absence of regulatory requirements, customers would favour some indication from their brokers that an intended short-sale could be covered鈥攁nd at what cost.
Anetics has produced tools that are used in the US for just this purpose. We have a Short-Sale Locates module as part of our Argent suite of tools for securities lending. This is a desktop application that we host, and it connects the stock loan desk directly to the customer seeking to locate a stock to sell short. It eliminates phone calls and creates a documented audit trail on who asked for what, when, and how was it acted on.
How do you enter a locate request?
The simplest approach is to copy a list of securities with quantity from a spreadsheet. Pasting the list into a locate-submit form gets the request into the system. The list immediately appears on the stock loan desk where broker personnel may take action. Any common security identifier can be used but ticker symbols seem to be most popular with equity traders.
Isn鈥檛 there ambiguity with ticker symbols across different regions, say for a customer that trades in two countries?
Yes, I鈥檓 sad to say. The same ticker can represent up to a half-dozen different securities. However, we require each locate request to include a country code to indicate where the security is to be delivered. The customer may also include an exchange code if necessary. We鈥檝e found little to no ambiguity within a single country, and no ambiguity if we know the exchange.
How do you support the customer that trades in multiple countries who requires support from more than one stock loan desk from within the same firm?
This is actually quite simple. From the customer perspective, the customer just enters the locate requests, in whatever region it intends to trade. Then, if the firm has say, two different stock loan desks, each covering a different region, each desk only sees the locate requests for the region that is covered by that desk. This allows for a high level of transparency and service to the customer, while segregating the locate process to the desk that is best prepared to act on it.
What about the customer that requires a higher level of automation?
We support three different modes of machine-to-machine automation. FTP file-transfer, where the customer presents requests in a data file, and can monitor results by reading an output file. Next, we expose a series of web-services from which a customer system can make requests directly to our system, using similar methods to check on status. Lastly, we support FIX messaging that can be used on a two-way basis to handle the request and reply, or on a one-way basis to deliver current locate activity to a downstream system on a real-time basis (like an order management system).
With this level of automation a firm could experience high volumes of locate requests. How does a firm cope with that?
For almost every firm that we support with a locate service, we also manage their available inventory. This represents the universe of supply that is known to the firm鈥攁ll internal and external street availability. As the stock loan desk goes to act on each locate request, our system presents it with a summary of historical locate requests that have been granted, a summary of what鈥檚 been granted to others, and the total supply that is available to the firm. This enables the desk to work quickly.
Alternatively, the system can be configured to automatically act on locate requests, based on the same rules that firm personnel would apply. This can cover 60 to 85 percent of all requests, leaving the more difficult items for desk personnel. We have one customer that processes more than 25,000 locates daily鈥攁nd most of the decisions are actually made by the system.
What about the concept of the firm charging a fee to provide a locate?
This is a question I hear frequently. Our platform supports the concept of customer billing鈥攚e have one customer doing it鈥攂ut I cannot say that the practice has become widespread. There is no question that the customer is willing to pay for a locate on a hard-stock, particularly one that is difficult to get. And our platform supports rate negotiation and the pre-borrow requirement/approval process. But I鈥檓 not sure that the industry, or the customer in general, is ready for an up-front fee on the short sale. I鈥檒l look forward to having that discussion at a later time, once more of a pattern emerges.
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