OSL, a digital asset platform based in Hong Kong, announced in June 2020 that Equities First Holdings LLC (EFH) had chosen OSL’s Custody Service as its official digital asset custodian. EFH disclosed that it selected Custody Service because it’s tailored for institutional investors. This decision is the latest in a series of recent moves that have increased EHF’s presence in the digital asset space.
Overview
OSL is owned by OS Limited, a subsidiary of the BC Group. It provides a range of services for institutional clients and professional investors, including brokerage, custody, exchange and Software-as-a-Service (SaaS). It also provides its clients with access to liquidity pools and other resources.
OSL CEO Wayne Trench stated that his company was thrilled to be working with Equities First Holdings and added that EFH was “an early adopter of digital assets and is an ideal partner for OSL.” Trench added that part of OSL’s mission was to provide institutional investors with access to digital assets. EFH’s leadership in securities-based financing will thus help OSL in further institutionalizing this space.
EFH has invested its assets into public equity throughout its history, which is a highly regulated sector. Traditional players in finance are beginning to take deliberate steps to participate in digital assets, resulting in a rapid transformation for EFH. Lachlan Campbell, Asia CEO of EFH has stated, “With [public equities] at the heart of everything we do, we needed the same caliber and standards on the digital asset side.”
About Equities First Holdings
Banks and other traditional lenders are making their lending criteria more stringent, thus limiting the options for borrowers. Even if they’re able to qualify for a loan from one of these lenders, their interest rate is likely to be prohibitively high. However, EFH is actively seeking out clients who can’t qualify for credit-based loans and those who need to raise money quickly. EFH offers stock-based loans and is currently leading the market in alternative loans.
Origins
Al Christy, Jr. founded Equities First Holdings in 2002 to supply its clients with funding from alternative sources. It provides loans using publicly-traded stocks as collateral and is the largest such lender in Europe. EFH allows businesses to borrow against their equity, allowing customers to run their business on a deal-by-deal basis. Once the borrower repays the loan in full, EFH returns the stocks within five business days.
This capability fills a gap between credit-based loans and margin loans for many borrowers. Stock-based loans usually have a higher loan-to-value (LTV) ratio than margin loans, but they may also offer fixed interest rates. Borrowers of stock-based loans therefore have the security of predictable payments.
The stock-based loans that Equities First Holdings offers typically have an LTV ratio of 50 to 75 percent and an interest rate between three and four percent. Conventional loans typically require an LTV of no more than 10 to 50 percent, with variable rates that reflect current market conditions. Despite this favorable comparison, stock-based loans have historically had a low acceptance rate due to disreputable practices by lenders in the past. However, they have a brighter outlook in the current market, which favors stock-based loans.
Margin loans require customer to pre-qualify and accept restrictions on the use of the funds, both of which are unnecessary with stock-based loans. Furthermore, a margin call creates the potential for liquidating the borrower’s collateral. Stock-based loans have no such restriction because borrowers aren’t under any obligation to repay the balance on the loan. In this event, the borrower effectively sells the shares needed to cover the balance.
Rapid Growth
The recent surge in the popularity of stock-based loans has made Equities First Holdings a highly recognized player in the world of alternative finance. The Indiana-based firm currently has offices in countries throughout the world, including the following:
- Australia
- China
- Hong Kong
- Singapore
- South Africa
- Thailand
- United Kingdom
- United States
EFH has grown exponentially since its founding, largely as the result of clients who have given up on traditional lenders. The value of the firm’s transactions totaled $1.4 billion in 2013, when it opened its London offices. Since then, investment firms worth billions of dollars as well as individual borrowers have obtained loans from EFH.
Another contributing factor towards EFH’s rapid growth is its complete focus on equity-based lending. It has also formed partnerships with a number of institutions that help ensure its continued success, including law firms and investment banks. These relationships allow EFH to provide businesses and individuals of high net worth with the capital they need in a safe, transparent manner.
Recent Accomplishments
EFH developed a single transaction worth $30 million with Environmental Clean Technologies in 2015. This project will fund research and development projects in India for the mineral and energy sectors. Medical supplier Angle became another success story for EFH. Angle CEO Andrew Newland borrowed $1.35 million against his shares in the company, which he used to provide the medical community with products for diagnosing cancer. Newland repaid the loan in full on October 27, 2016 and received his collateral shares back from EFH.
EFH announced additional accomplishments for its 15th anniversary in 2017. For example, it had completed more than 700 transactions since first opened for business. Furthermore, the firm distributed more than $1 billion dollars to its clients between 2012 and 2016.
EFH also announced in 2017 that it had returned Paysafe Group’s collateral shares since this client had made all of its interest payments. Paysafe Group took out the loan in 2014 and repaid it in 2017, making this transaction a success. EFH hopes to do more business with Paysafe Group in the future.
Future Goals
EFH’s goals for the future include dispersing over $2 billion to its clients and completing over 2,000 transactions. In addition, the firm plans to become the lender that its clients turn to for meeting their personal and business financial goals, even when their country is experiencing a financial crisis. EFH also wants its customers to obtain the funding they need as quickly as possible, which is why it doesn’t require a long application process. It typically only takes 24 hours to process an application since the loan is backed by shares in a public company.
Summary
Equities First Holdings is using OSL’s Custody Service to manage its digital assets, which is especially beneficial for its traditional investors. The firm is able to offer loans at low-interest rates to international borrowers because these loans use stocks as collateral, which also means the interest rates aren’t subject to market fluctuations. Furthermore, EFH’s clients have fewer restrictions to worry about than borrowing from traditional lenders like banks. EFH is thus able to offer loans in financial climates where other lenders can’t operate.