Securities Finance: Data applications for beneficial owners

Abstract

We use the IHS Markit Securities Finance dataset and beneficial owner consulting team to map the evolution of industry practices. Securities lending plays a critical role in global capital markets: the practice is broad, encompassing borrowing securities to cover a failed trade, borrowing to sell short, liquidity and financing. With the number of investors participating in securities lending continuing to increase, there is a need to have guiding principles in place with regard to lending programme controls and the evaluation of performance and risk. Part of the challenge from a beneficial owner’s perspective is being able to access quantitative and qualitative data to properly compare themselves to similar entities in order to make changes to existing parameters and perform a thorough review of their programmes. Having more transparency and a better understanding of the data allows beneficial owners to identify opportunities that may increase the profitability of their programmes, while allowing for changes to programme parameters within their risk/reward appetite. The increased focus on ESG (environment, social and governance) for many beneficial owners has resulted in new evaluations of securities lending programmes as they relate to ESG policies for respective investments. As internal priorities evolve for beneficial owners, regulation has also become an important factor of consideration for securities lending participants. It has affected the complete chain from execution of initial trades to monitoring and reporting. We provide evidence of these changes from academic research, industry working groups as well as the IHS Markit Securities Finance dataset and consulting business.