In this article, Anthony C. Bisegna, global head of State Street Markets, discusses the importance of liquidity management and securities finance during periods of market turbulence — and how our capabilities power investment decisions, accelerate performance and help clients navigate shifting markets.
 

The importance of FX hedging during times of geopolitical and market turmoil

Market turmoil often leads to extreme currency fluctuations. Volatility can wreak havoc on financial planning and operations. FX hedging helps manage this volatility, providing a safeguard against sudden adverse currency movements. By locking in exchange rates, market participants can protect portfolio returns from unwanted currency impacts, ensuring more stable financial outcomes.

In times of crisis, liquidity in certain currency pairs can become scarce, making it challenging to hedge risk. The 2008 financial crisis saw some exotic currencies become untradable overnight, leaving businesses and investors in a precarious position. FX hedging ensures that liquidity is preserved, allowing investment managers and asset owners to maintain BAU operations and meet their financial obligations even under stressed market conditions.

Political and economic instability can significantly impact currencies and cross-border fund flows. Elections, geopolitical tensions and economic sanctions can often lead to rapid and unpredictable changes in exchange rates.

For businesses operating internationally, currency fluctuations can disrupt supply chains and financial planning. A sudden exchange rate dislocation can increase costs and reduce profitability overnight.

FX hedging provides a buffer against these and other disruptions, allowing firms to maintain operational continuity despite market upheavals. This stability is crucial for long-term planning and sustained growth.
 

The critical nature of securities lending in a period of global uncertainty

Securities lending plays a pivotal role in enhancing market liquidity. By allowing investors to borrow securities to complete trades, it helps ensure that markets remain liquid even during periods of stress. When liquidity dries up, buying and selling assets can become difficult, leading to increased volatility and uncertainty. Securities lending helps mitigate these issues by facilitating transactions and reducing friction across market operations.

During periods of market turmoil, short selling becomes an essential and often underappreciated tool for price discovery. Short sellers borrow and sell overvalued securities, contributing to the correction of mispricing and enhancing market efficiency.

Investors use securities lending as a risk management strategy to hedge their portfolios against market volatility. For instance, borrowing securities for a short sale can offset potential losses in other portfolio names. The ability to manage risk is particularly important during turbulent times when market opportunities are often underappreciated.

Securities lending transactions typically involve the exchange of collateral to secure additional funding. During market turmoil, access to capital can become constrained, making it challenging for institutions to meet their liquidity needs. Collateral sourced through securities lending can help institutions secure the necessary funding to ensure operational resilience.

For institutional investors, securities lending generates additional income from their portfolios without selling underlying assets. This income stream is particularly valuable during market downturns.

Securities lending is a critical component of the financial system, especially during times of market turmoil. By enhancing liquidity, facilitating price discovery and enabling risk management, G-SIB-backed securities lending partners support the broader financial ecosystem.

Helping clients navigate changing market conditions through research

In periods of heightened market volatility, our role as a trusted partner becomes even more critical. While liquidity provision and financing remain foundational, our differentiated research capabilities are increasingly central to helping clients navigate complexity and make informed investment decisions.

Nearly two decades ago, we pioneered a unique research initiative by forming a partnership with leading academics and industry professionals. This collaboration enabled us to analyze anonymized and aggregated custody holdings, generating powerful insights into market flows, investor positioning and asset allocation trends. These insights have become an integral part of the buy-side investment process, offering clients a clearer lens through which to interpret market dynamics.

Recently, we’ve expanded these capabilities by integrating alternative data sources through strategic partnerships with big data firms. For example, our collaboration with PriceStats leverages web-scraped pricing data to produce real-time inflation indices. These tools enhance our ability to forecast macroeconomic trends and provide clients with timely, actionable and differentiated intelligence.

Complementing this data-driven approach is our global macro strategy team — embedded directly on the client’s trading desk and working in close collaboration with investment teams. These strategists synthesize market developments and research findings into cohesive narratives, offering clients a unique and deeply informed perspective. Especially in volatile environments, their daily engagement ensures that clients are equipped with the clarity and confidence needed to act decisively.
 

How State Street is helping clients remain agile and seize market opportunities

In today’s volatile and fast-evolving financial landscape, agility is not just a strategic advantage — it’s imperative to survival. At State Street, we empower our clients to stay nimble and capitalize on market opportunities through our deep liquidity and advanced trading tools.

Our FX capabilities form the cornerstone of this support model. In times of market stress, when liquidity is scarce and pricing becomes opaque, our strong position and steady deal flow enable us to offer competitive pricing and reliable execution. This is complemented by our GlobalLINK^TM suite, which provides clients with execution management systems (EMS), pre- and post-trade analytics through tools like BestX^®, and algorithmic trading solutions that help minimize market impact and preserve anonymity.

Beyond trading, we help clients unlock additional value through securities lending. Our agency lending team of seasoned investment professionals works closely with beneficial owners to structure lending programs that generate alpha and enhance fund performance. These programs are tailored to client needs and supported by global teams that engage daily to ensure optimal execution.

Our financing capabilities extend further through a robust repo business, which supports short-term liquidity management and collateral optimization. Whether clients are looking to lend, borrow or source collateral, our platform provides the flexibility and scale needed to respond to rapidly shifting market conditions.

At State Street, we don’t just help clients weather volatility — we help them harness it. Through a powerful combination of liquidity and technology, we enable our clients to remain agile and seize the opportunities that others might miss.

Hear more from Anthony on how our solutions are helping our clients navigate shifting markets with confidence: