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Equilend : EquiLend 10th Anniversary
Profile: ian strafford-taylor www.equilend.com 11 the UK we change about £30bn of our money into foreign currency every year to go abroad. So we decided to attack this space with an internet-only card-based alternative to cash and FairFX was born. There are certain similarities between EquiLend and my current business, especially in how we expect it to evolve. Underlying our business platform at the back end is a peer-to-peer technology that takes bids and offers on FX from a range of participants. We can open our platform to any two users to trade with each other and, ultimately, this is our aim. I wouldn’t say that when we started FairFX I was thinking about EquiLend but the fact that I’d been exposed to this technology certainly had an influence. When I was at UBS I had noticed how effective netting trades in this market had been: the head of division was using lots of complex barrier options until he realised that he could save more money by just building a machine that netted off all of the flows. Decades: Were you surprised that EquiLend succeeded? I think the fact that it became operational and, subsequently, profitable is a triumph. I derive some pride in this given the number of obstacles we faced but I think that Ralph Vitale [EquiLend’s first board chairman, profiled on page 20] has to take a lot of the credit; he had great strength of personality – as well as the clout of State Street behind him, of course. The problem was that participants didn’t want to show their competitors how they were doing business. And the larger players, such as the two prime brokers who were dominant in the hedge fund sector, were naturally more reticent about the playing field being levelled. Then there were the questions around when you have enough members, who is in and who is out. I think that another reason EquiLend worked was, ironically, to do with apathy. People were certainly very excited in the beginning. This meant that all the heads of securities finance were around the table and it was quite tough to get a consensus. But once people got over this initial excitement they sent representatives along – remember they all had their businesses to run – and it was easier to get things done. The appointment of Dirk [Pruis] as CEO was important here. But this could only happen because people trusted that things would be run in a way that didn’t compromise their business and, again, this was down in large part to Ralph. // Curriculum Vitae (extracts) 2006 – Chief operating officer, fairfX, london 2001 – Global head of equity collateral trading, ubs 1998 – head of global collateral trading, ubs 1992 – Global head of international stock loan, Morgan stanley Left: ian Strafford-Taylor at the offices of fairfX in london, the firm he helped found after leaving uBS was a sense that it was better to seize control of our destiny than to have something forced upon us from outside. I felt that, in order to meet that requirement for greater transparency, we needed to show the supply and demand in the general collateral market. That’s all I really expected would happen – that everyone around the table would push their general collateral lending through the platform. Of course, we’d seen electronic trading increase transparency before then. Subsequently, there was the credit crunch in 1998 – looking back on it, this was the first wave of what eventually blew up in 2008 – when a number of banks found it hard to fund themselves. So you could see that secured funding was going to become more important. We saw this at UBS when the securities finance business moved from within the equity business to become part of global collateral trading. This was part of a wider trend where banks’ businesses that could mobilize assets were put to work in lending or otherwise making money. Decades: What did you do after UBS and EquiLend? When I left UBS, in 2005, I was looking forward to retirement – out to pasture, learning to play golf and maybe the odd long lunch – but very soon I got bored. One of my various responsibilities at UBS had been managing the European FX business, so I knew all too well that there is virtually no spread at all in the interbank markets. Therefore, it seemed to me particularly strange that when you change money at the airport you pay through the nose. I’ve always thought that people queuing up at a bureau de change to get physical money feels like a very old economy business in the era of the internet. This is especially true given the size of the industry: in The larger players, such as the two prime brokers who were dominant in the hedge fund sector, were naturally more reticent about the playing field being levelled” $4m Initial seed capital required from each of the ten EquiLend member firms EL.indb 11 26/08/2011 09:54