The HOOPP model

Hi, everybody. This is Peter Bassler, and we are back with another episode of Peer Connections, the podcast series for the Global Peer Financing Association, otherwise known as GPFA. Today, we are here to talk to the Healthcare of Ontario Pension Plan, also known as HOOP, with Rob Gooby and Steve Anderson. And I've known Rob for 15 years. He's a good friend. So they are considered one of the most sophisticated and unique players in this space. So we're excited to hear from them. Now we're going to pass it off to Steve Anderson to talk about the evolution and the history of securities financing at Hoop. Steve, welcome. Thanks very much, Peter. I joined Hoop in 2006. It's interesting. I had a bit of a varied background. It was one of the reasons I got the job. I had a derivative background having traded precious metal and FX options at Scotia in a prior job. And I had actually been the repo trader and funding and liquidity at Avian Amro Bank in the late 90s. So I had a little bit of everything. I'd also traded some FX. So I was a bit of a jack of all trades, master of none, so to speak. And that really helped me get my job at Hoop as coming into work in the equity derivatives because we were a big derivative shop and also start up the funding and liquidity. We didn't have a repo program at all at Hoop at the time. So I was tasked with starting up the repo program. When I first arrived at Hoop, the first time I went to do a repo trade, I was working off sheets of papers that had our positions from our custodian that were three days old. So I had to call up the custodian before I did a repo trade to make sure we actually had the bonds still with us and they hadn't been lent out by the custodian. And then it was up to Rob in the middle office trying to figure out how we were actually going to book these things since our system couldn't handle the sell buyback because it treated it as an outright sale. So we were trying to figure out how to book these things and how to account for them and whatnot. So it was a bit of a mess. And so where we are today versus where we were then, now we've got a world-class collateral management system with straight through processing of repo trades. And it's just incredible to me where we've come from where we were when I first joined. And on the SEC lending side, We were borrowers of Canadian stocks mainly at the time against some of long swap positions. It was a bit of a finance trade that we'd use to raise cheap cash. We were actually posting Canadian government bonds against borrowing equities and paying about seven basis points for the privilege at the time, which didn't make sense, but we were sort of beholden to our limited amount of counterparties and where they were prepared to do the trade. So we were quite lucky at Hoop. I think there was a bit of a foresight on the part of Jim Cohane, and maybe we got a little bit lucky where he recognized after the global financial crisis, that collateral management and funding and liquidity, which the office is a little dark corner and nobody paid much attention to it until Lehman collapsed and the various ramifications of that. And so Jim actually hired Rob into the front office to basically start up a SEC lending and collateral business, which we were sort of doing already, but it was more kind of a utilitarian function. It wasn't really something we looked at as a way to generate alpha at the time until Rob came along. And really one of the first things that Rob did, which was extremely important to how this business has evolved and put us in the tremendous competitive advantage position that we have today. One of the first things he did was worked for years and years and years on expanding our list of counterparties and our legal agreements, which take forever to get done. And that obviously gave us an outlet of different places. For example, in that Canadian stock trade I just talked about, we didn't have to just go to the Canadian banks. We would go to other counterparties that were happy to give us stock and we would actually get paid for that upgrade trade. We were giving Canadian bonds or whatever collateral we were giving and we were borrowing the stock. So this evolution from me looking at a couple of pieces of paper to try and figure out how to book a repo trade to where we are today, a lot of it, the foresight of Jim hiring Rob and then Rob's dogged determination over a number of years to expand our list of counterparties and the technology, Rob coming from a back office, middle office function, recognized the importance of managing that collateral and knowing exactly where the collateral is at all time. And the value of that collateral on a relative basis was extraordinarily important. So Rob spent a number of years building up relationships in the industry, getting the legal agreements. And truly, those are the two main things that really spurred us on to where we are today. And I think a global leader in the SEC lending and collateral business. And Rob truly is an innovator in that space. That was great, Steve. Thanks for that background. And Rob, maybe you want to pick it up from there and talk a little bit about where you guys are today and how you're looking at things. I know it's quite unique when you think about most of your peers. Thanks, Peter. I joined Hoop in 2000. Unlike Steve's background, my background has been always in operations. Steve came out from ABN Ambrose and he was really into the trading side of the business. I had the good fortunes of working in the back office from 1993, so a number of years. I worked for several banks. I worked for Templeton, HSBC, Bank of Trust, Deutsche Bank, and eventually landed at Hoopak.