Empowering asset owners
01 October 2024
Matthew Chessum, director of securities finance at S&P Global Market Intelligence, examines the shift towards the use of direct securities lending data and oversight management tools
Image: Shutterstock
In recent years, a noticeable trend has emerged in the securities finance markets: asset owners are increasingly opting to subscribe directly to securities lending oversight management solutions. We have seen that asset owners, who do not transact directly in the market, with over US$8 trillion in lendable assets, have chosen to subscribe directly to S&P’s independent securities lending data and oversight management solutions.
This represents approximately 20 per cent of the lendable assets in the global market. This shift reflects several broader changes within the industry, driven by asset owners' desire for independent analysis of programme enhancements, a heightened focus on fiduciary responsibilities, and an overall deeper engagement with the mechanics of securities lending. Understanding the dynamics of their securities lending programmes is therefore providing beneficial owners with valuable insights into the evolving landscape of securities finance.
Demand for independent analysis and transparency
One of the primary drivers behind this trend is the asset owners' desire for independent analysis of programme enhancements and market dynamics. Historically, asset owners relied heavily on third-party agents such as custodians or asset managers to handle the complexities of securities lending programmes. However, this model often limited direct access to detailed data, leaving asset owners dependent on intermediary reporting, which could sometimes lack the granularity required for informed decision-making.
Direct access to performance solutions allows asset owners to gain an unfiltered, comprehensive view of the performance of their securities lending programmes. The tools on offer have also proven to be highly complementary to the services they receive from their lending agents, be they independent or affiliated. These platforms combined offer transparency by providing in-depth insights into metrics such as loan volumes, utilisation rates, and pricing trends. Independent analysis also means that asset owners can objectively evaluate the performance of securities lending programmes and strategies, without relying solely on intermediaries.
Furthermore, with markets becoming more sophisticated and competitive, programme enhancements are frequent. Asset owners now seek objective evaluations of new features in securities lending programmes, such as changes in collateral management protocols or improvements in lending strategies. The ability to access independent, data-driven analysis ensures that these enhancements are thoroughly scrutinised, helping asset owners make better-informed decisions that align with their goals.
Heightened focus on fiduciary responsibilities
Another significant factor behind the increased interest in direct subscriptions is the growing emphasis on fiduciary responsibilities. Asset owners, particularly pension funds, sovereign wealth funds, and other long-term institutional investors, are acutely aware of their duty to act in the best interests of their beneficiaries. This fiduciary obligation extends to ensuring that their securities lending activities are not only profitable but also conducted in a manner that minimises risk.
In an era of heightened regulatory scrutiny, asset owners are more conscious than ever of the potential reputational and financial risks associated with securities lending. Concerns over counterparty risk, collateral quality, and regulatory compliance require constant monitoring. S&P’s securities lending oversight management tools provide the means necessary for asset owners to assess whether their lending programmes meet regulatory and ethical standards. These services often include features that track adherence to governance guidelines, giving asset owners confidence that their lending programmes align with their fiduciary obligations.
Deeper engagement with securities finance markets
Finally, asset owners are becoming increasingly engaged with the securities finance markets, reflecting a shift in how they view the role of securities lending within their broader investment strategy. Traditionally seen as a passive source of incremental revenue, securities lending is now recognised as an integral component of overall portfolio management. As a result, asset owners are taking a more active role in managing and optimising these programmes.
By subscribing directly to S&P’s securities lending oversight management solutions, asset owners are better positioned to make proactive decisions. They can identify market trends, compare their performance against peers, and adjust lending strategies to capitalise on new opportunities. This level of engagement not only enhances returns but also provides asset owners with the confidence that they are maximising the value of their lending programmes.
The decision by asset owners to subscribe directly to these services reflects their evolving role in the securities finance markets. Motivated by a desire for independent analysis, a growing focus on fiduciary duties, and an increased engagement with securities lending, asset owners are taking greater control of their lending programmes. As the landscape continues to evolve, direct access to these services will likely become even more critical for asset owners seeking to optimise their performance while meeting regulatory and ethical obligations.
This represents approximately 20 per cent of the lendable assets in the global market. This shift reflects several broader changes within the industry, driven by asset owners' desire for independent analysis of programme enhancements, a heightened focus on fiduciary responsibilities, and an overall deeper engagement with the mechanics of securities lending. Understanding the dynamics of their securities lending programmes is therefore providing beneficial owners with valuable insights into the evolving landscape of securities finance.
Demand for independent analysis and transparency
One of the primary drivers behind this trend is the asset owners' desire for independent analysis of programme enhancements and market dynamics. Historically, asset owners relied heavily on third-party agents such as custodians or asset managers to handle the complexities of securities lending programmes. However, this model often limited direct access to detailed data, leaving asset owners dependent on intermediary reporting, which could sometimes lack the granularity required for informed decision-making.
Direct access to performance solutions allows asset owners to gain an unfiltered, comprehensive view of the performance of their securities lending programmes. The tools on offer have also proven to be highly complementary to the services they receive from their lending agents, be they independent or affiliated. These platforms combined offer transparency by providing in-depth insights into metrics such as loan volumes, utilisation rates, and pricing trends. Independent analysis also means that asset owners can objectively evaluate the performance of securities lending programmes and strategies, without relying solely on intermediaries.
Furthermore, with markets becoming more sophisticated and competitive, programme enhancements are frequent. Asset owners now seek objective evaluations of new features in securities lending programmes, such as changes in collateral management protocols or improvements in lending strategies. The ability to access independent, data-driven analysis ensures that these enhancements are thoroughly scrutinised, helping asset owners make better-informed decisions that align with their goals.
Heightened focus on fiduciary responsibilities
Another significant factor behind the increased interest in direct subscriptions is the growing emphasis on fiduciary responsibilities. Asset owners, particularly pension funds, sovereign wealth funds, and other long-term institutional investors, are acutely aware of their duty to act in the best interests of their beneficiaries. This fiduciary obligation extends to ensuring that their securities lending activities are not only profitable but also conducted in a manner that minimises risk.
In an era of heightened regulatory scrutiny, asset owners are more conscious than ever of the potential reputational and financial risks associated with securities lending. Concerns over counterparty risk, collateral quality, and regulatory compliance require constant monitoring. S&P’s securities lending oversight management tools provide the means necessary for asset owners to assess whether their lending programmes meet regulatory and ethical standards. These services often include features that track adherence to governance guidelines, giving asset owners confidence that their lending programmes align with their fiduciary obligations.
Deeper engagement with securities finance markets
Finally, asset owners are becoming increasingly engaged with the securities finance markets, reflecting a shift in how they view the role of securities lending within their broader investment strategy. Traditionally seen as a passive source of incremental revenue, securities lending is now recognised as an integral component of overall portfolio management. As a result, asset owners are taking a more active role in managing and optimising these programmes.
By subscribing directly to S&P’s securities lending oversight management solutions, asset owners are better positioned to make proactive decisions. They can identify market trends, compare their performance against peers, and adjust lending strategies to capitalise on new opportunities. This level of engagement not only enhances returns but also provides asset owners with the confidence that they are maximising the value of their lending programmes.
The decision by asset owners to subscribe directly to these services reflects their evolving role in the securities finance markets. Motivated by a desire for independent analysis, a growing focus on fiduciary duties, and an increased engagement with securities lending, asset owners are taking greater control of their lending programmes. As the landscape continues to evolve, direct access to these services will likely become even more critical for asset owners seeking to optimise their performance while meeting regulatory and ethical obligations.
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