Gino Timperio鈥檚 financial services career has moved hand-in-hand with the growth of securities finance services at State Street, with the Bentley University alumni working at the heart of multiple projects that have defined the advance of the company鈥檚 securities lending, financing and collateral services solutions.
Timperio joined State Street over 30 years ago, serving initially as a portfolio accountant before joining the bank鈥檚 Enterprise Risk Management Group as a broker-dealer credit analyst, working principally in support of the securities lending team.
After half a decade in this role, Timperio moved into the securities finance area within the Global Markets division in 1997, spending the next 19 years in agency securities lending and becoming the lead architect of the team鈥檚 risk-based capital model over this period. 鈥淭his provided true ground-level experience,鈥� he volunteers. 鈥淎mong other responsibilities, this involved forecasting the team鈥檚 financials and modelling market risk and capital coverage.鈥�
Over time, he served as chief operating officer and then was promoted to head of State Street鈥檚 agency lending business, reporting to Lou Maiuri and working alongside Paul Fleming who, at that time, was global head of the bank鈥檚 Enhanced Custody product.
In 2016, Maiuri invited Timperio to transition within State Street鈥檚 Global Markets division to lead the creation of a global financing and collateral solutions team for the Boston-based banking giant. On the financing side, this grew initially from taking leadership of State Street鈥檚 FICC sponsored repo programme and building its client base, expanding the range of qualified institutions that the bank supported through this sponsored clearing product and extending the collateralisation and margining benefits, particularly out to firms falling into scope of BCBS-IOSCO Uncleared Margin Rules.
At the start of 2022, Timperio鈥檚 role expanded again as he returned to lead State Street 色花堂Finance, taking on combined responsibility for agency lending and enhanced custody, while continuing to manage the global financing and collateral services business that the bank had nurtured over the preceding five years. With this development, State Street brought its established FICC Sponsored Repo services and its newer peer-to-peer (P2P) repo programme, launched in March 2021, under a now-wider 色花堂Finance umbrella.
State Street鈥檚 peer-to-peer repo service facilitates overnight and term repurchase agreement transactions between buy-side firms, with State Street offering a guarantee for repo trades that meet programme requirements. Timperio notes that repo transactions are traditionally early morning trades and demand has been heavily driven by sell-side organisations seeking to access liquidity by financing their securities inventory. However, there is also significant demand from buy-side asset owner and asset manager clients as both cash providers and cash receivers. Some may receive cash collateral against securities lending activities, for example, and are seeking a wider range of cash placement opportunities to generate an attractive risk-adjusted return on their cash balances. Other buy-side firms, particularly hedge funds, may require liquidity to support their investment strategies and recognise benefits through extending financing options beyond their established prime brokerage relationships. 鈥淭he P2P repo service aims to widen clients鈥� opportunity set,鈥� Timperio notes.
Under the supervision of State Street鈥檚 managing director for financing solutions, Travis Keltner, the P2P repo platform carried its first live trades in October 2021, between entities organised in the US and the Cayman Islands. State Street plans to extend the service into selected markets in EMEA and APAC during 2022 and 2023. Buy-side firms can participate as repo buyer or seller under the programme master repurchase agreement (MRA).
鈥淲e initially tested an incubation trade where a buy-side firm received cash collateral from a traditional sell-side counterparty and invested that cash through our P2P solution with another buy-side counterparty,鈥� explains Timperio. 鈥淲ith the proof of concept complete, we went live with the service and have gradually been building the number of participating firms and the pipeline of transactions executed via this platform.鈥�
Expanding triparty
Recent debates around the future of securities finance have reflected heavily on product convergence, recognising the importance for service providers to support clients鈥� needs across a wide range of collateralised trading activities. Through its Collateral+ service, State Street has targeted a solution that is agnostic to the underlying service that requires collateralisation 鈥� whether securities lending, bilateral repo, cleared and OTC derivatives trading, or total return and longevity swaps 鈥� and is able to support clients front-to-back, supported by an STP workflow.
鈥淪elling these services to the client as a set of independent products is an outdated approach,鈥� observes Timperio. 鈥淎 primary focus for our team is how we present one State Street to the customer and how we deliver an integrated service that is best suited to each of our customer鈥檚 specific needs.鈥�
It was the pursuit of an integrated, front-to-back solution for buy-side clients that was central to State Street鈥檚 purchase of front-office technology and investment management solutions specialist Charles River Systems in 2018.
The development of State Street鈥檚 triparty collateral management solution, Collateral+, is a natural extension of these dynamics, says Timperio. With a wider group of buy-side firms required to post initial margin under Phases 5 and 6 of UMR, it is important to have a solution in place to meet their regulatory needs. But beyond ensuring regulatory compliance, clients are also seeking assistance with their alpha generating activities, identifying valuable securities from their portfolios that can be loaned or financed in line with their risk appetite.
Typically, this may involve helping clients to fulfil margin requirements on a cheapest-to-deliver basis, while targeting securities that may command a higher fee rate through intrinsic lending. But beyond established collateral sets, clients may also over time wish to post digital assets as collateral and to manage a collateral inventory that contains a mix of 鈥榯raditional鈥� cash securities, 鈥榯okenised鈥� assets and digitally-issued assets.
In driving its digital asset strategy, the bank has established a State Street Digital group under Nadine Chakar, former head of State Street Global Markets, with attention to managing clients鈥� end-to-end digital investment across pre-trade, trading and post-trade commitments. 鈥淎s demand grows, we will work with the digital asset group to deliver financing and lending for our clients, drawing on its DLT-based architecture,鈥� says Timperio.
He highlights a number of key considerations in guiding this service development. One, inevitably, is to establish robust historical data to evaluate the volatility associated with these digital instruments to ascertain how they should be collateralised. 鈥淲hat margin levels should we apply? And how will these be accommodated within the indemnification programmes that we offer to securities lending and P2P clients?鈥� he questions. 鈥淚ndemnified agency and P2P lending are capital intensive and the capital consequences of these decisions need to be well understood.鈥�
Operationally, State Street is also taking a close interest in 色花堂and Exchange Commission (SEC)-backed steps to reduce the securities settlement period in the US, whether to T+1 or T+0. A move to next-day settlement will put pressure on settlement participants to ensure timely population of message fields and trade confirmation within a reduced timeframe. If the US market ultimately does move to same-day settlement, this may accelerate adoption of DLT-based settlement infrastructure to avoid potential transition drag of legacy systems.
In parallel with State Street鈥檚 in-house digital asset team led by Chakar, the bank has also established partnerships with a number of fintech companies to support its range of technology development options.
Expecting the unexpected
In bringing discussion to a conclusion, SFT asked Gino Timperio to reflect on the key lessons that he has learnt in his 33 years in securities finance 鈥� and how these are shaping his own decision making and development strategy within State Street.
鈥淭he primary lesson must always be to expect the unexpected,鈥� he responds.
In practice, he suggests, State Street generates solutions that support trading and post-trade efficiency in a business-as-usual environment, empowering the customer to make good trading decisions based on the data and insights provided by the bank. 鈥淏ut we also design our systems to support the customer in a wide range of stress environments,鈥� he says, 鈥渃reating the technology, the client service, the market data support and the right people to execute in any environment, whether under normal conditions or under high market stress.鈥�
More specifically, indemnified securities financing remains a core activity. While it is capital intensive, State Street has tailored solutions for a range of different participants in the market, including globally systemically important financial institutions (G-SIFIs) and an expanding cohort of non-G-SIFIs.
鈥淎 lot of the value comes back to how we deliver effective optimisation of our clients鈥� securities inventory,鈥� says Timperio. In line with its fiduciary responsibilities and client service commitment, State Street provides detailed performance updates and attribution, covering a wide range of factors from loan availability and utilisation, pricing, distribution, credit quality, market and volatility risk and product development activities.
鈥淥ur job is to support clients holistically wherever they are globally,鈥� Timperio concludes. 鈥淭hrough innovation, this has included the sponsored access product, enhanced custody and creation of the peer-to-peer network and we continue to work hard to build our critical mass in these areas. Over time, it will also include the expansion of our digital asset custody, lending and financing solutions.鈥�
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