It is nothing new to see senior market participants moving into other parts of the financial industry but the stream has become a torrent in recent months. Numerous leading industry figures, many of whom have spent decades in agency lending, prime brokerage, repo and derivatives roles are switching to the technology vendor side of the business.

Blockchain start-ups are one group poaching a significant number of senior executives. Last month, Kelly Mathieson, the former head of JPMorgan’s global collateral management and securities clearing businesses, switched to distributed ledger specialist Digital Asset.

Likewise, fintech entrants specialising in collateral management and other areas are adding years of expertise to their ranks. Lee McCormack, a senior derivatives clearing and market infrastructure executive who has worked at Nomura, Morgan Stanley and UBS, resurfaced at CloudMargin last month.

Ben Challice, chief operating officer at Pirum Systems, which provides tech-based services to support post-trade risk and collateral management in the securities lending and repo markets, similarly made the switch from his role as head of global prime services at Nomura earlier this year.

“There’s a growing appetite among industry participants to try somewhere truly entrepreneurial,” explains Challice, who has also held executive roles at Lehman Brothers and Goldman Sachs.

He isn’t surprised to see an increasing number of market participants opt for a career change given what he describes as the “cyclical challenge” facing investment banks generally and securities finance in particular.

“Revenues are under pressure and there is a heavy focus on controlling costs. That limits investment and hinders innovation. At the same time, this is a pivotal phase for the industry where technology-driven innovation, greater automation and efficiencies are being demanded by the market. Being part of the solution, rather than reacting to problems, is exciting.”

Challice says he feels reinvigorated by his switch to Pirum. “As well as improving efficiency, the regulators and therefore the market are looking to manage risk and capital, and now – given SFTR – report in a sophisticated, real-time way. Pirum is uniquely placed to meet those needs.”

In a similar move during July, Ross Levin joined Pleeco, a New York start-up that helps banks, broker-dealers and buy-side firms to optimise their balance sheets, cash, capital, funding and collateral across asset classes and business silos. Levin, who built Itau’s US multi-asset prime brokerage business from the ground up and has held senior roles at ABN Amro and RBS, has a slightly different take on the industry trend.

“Banks are struggling to retain top talent as more and more workers either join financial technology start-ups, or leave to form or join consulting firms,” he explains. “The latter trend has been in play for as long as the industry itself. The former, however, is a brand new phenomenon that is a reflection of the financial industry.”

According to Levin, the most important reason is that since the financial crisis of 2008 banks have gradually stopped working on innovative products or services, instead moving into regulatory and compliance mode, which is, while critical to undertake, less stimulating for someone with a creative mind.

The second reason is a product of technological progress. As banks are becoming more and more technology-driven, technology companies’ success is directly related to the systems and services they provide to financial institutions. Their fortunes are more intertwined than ever and new systems on offer are nearly always led by experienced industry practitioners.

Industry knowledge

Jonathan Lombardo, senior vice president of funding and financing services at Eurex Clearing, argues that technology companies looking to make inroads into the industry cannot build effective systems unless they have specific expertise, which can only come from someone who has been working in the business itself and has deep insight into how it operates. As such, technology companies must actively search for those on the business side to join their ranks.

“In my opinion, there are too many moving parts that prevent someone from building technology for the securities finance market without having had industry experience,” adds Lombardo, who has also worked at Pirum, Citi and SecFinex, an electronic stock lending and borrowing platform that closed in 2011.

There are, according to Lombardo, too many securities lending specific nuances, niche processes that need to be considered. “It’s not easy to create a plug-andplay solution from scratch,” he adds. Eurex Clearing’s own securities lending central counterparty clearing (CCP) service in Europe, for example, made use of existing technology at Pirum, EquiLend and Eurex Repo’s F7.

Lombardo admits it made sense to use existing technology, developed by expert vendors, as part of the system building process. “Using our own expertise as well as trusted technology partners backed up by years of industry experience made the development of the platform easier. It also meant our clients didn’t have to do any heavy lifting.”

Roy Zimmerhansl, global head of agency lending at HSBC Securities Services, has spent the past three decades working in and around the securities finance industry. He has also held roles at investment banks, brokers and a central depository as well as operating as an independent consultant and owning a training company.

He has also worked as a product specialist at a software company Trading Apps between 2011 and 2013 and built an electronic platform for equity lending at ICAP in 2006.

“Broadly speaking, technological changes in this market don’t happen as quickly as we all expect them to,” explains Zimmerhansl, who chaired a securities lending technology user group back in the late 1980s. “There have always been technically gifted people in and around the industry, but these individuals have traditionally lacked an understanding of the business drivers. Senior managers in agency lending and prime brokerage roles need technology that fully supports their day-to-day business functions and long-term aims and objectives.”

The higher number of market participants appearing on the technology side of the business should result in a greater number of high quality next generation solutions becoming available. It is often the case that dedicated technology companies can provide the same or better solutions at a significantly reduced cost, and they are capable of building them in a much shorter time period than banks are able to internally.

“There is no argument that technology companies can build better systems that banks – just like banks provide better financial services than technology companies,” adds Pleeco’s Levin. “However, for an IT company to be successful, they need experienced financial specialists with deep industry knowledge. This is why we see so many industry veterans joining technology start-ups. Although wearing a t-shirt to work is a reason that should not be discounted.”