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Securities Lending: Taking governance seriously

From the desks of John Arnesen, Consulting Lead, Pierpoint Financial Consulting and Andy Stephenson, Practice Manager, Pierpoint Financial Consulting and Founder, ServiceMatrix

ServiceMatrix and Pierpoint - filling the service benchmarking gap

The securities lending market has been through dramatic changes since its inception. From simple fails coverage prior to dematerialisation to significant bond lending programmes that added liquidity to the repo markets through expansion to global equities lending for a growing array of beneficial owners across the globe, encompassing instruments in almost every developed market, many developing markets and even some emerging markets.

This over-the-counter market – with the added peculiarities of transactions usually being open-ended and subject to change during their lifecycle – has made for complex processing. Originally very labour-intensive, many processes have been streamlined with straight-through processing and the introduction of centralised reconciliation and trading platforms. While this has improved efficiency and risk management in many ways, there is one critical issue for beneficial owners and asset managers: they are heavily reliant on agent lenders when it comes to the execution of their lending programmes. Notable by its absence is an improvement-driven independent benchmarking process and feedback loop to assist asset owners and fund managers identify and resolve gaps in service performance. Frustratingly for agent lenders, where they have enhanced their programmes, the time lag until improvements are understood, implemented and widely recognised can be significant.

Pierpoint Financial Consulting provides in-depth insight and guidance to beneficial owners and asset managers in this space. First and foremost, clients now have a trusted source of impartial and independent advice and assessment. The firm’s seasoned market leaders, drawn from the across the entire securities finance ecosystem, make it unique in possessing the skillset to deep-dive into the performance of any lending programme.

The firm is called on to carry out independent reviews of current lending programmes to identify whether they are fit-for-purpose. Assignments typically involve clarification of the beneficial owner’s securities lending objectives and risk profile in order to identify the ways in which the current programme structure does and does not meet these objectives. Examination of a host of variables – including loan duration, recall for sale activity, collateral suitability, counterparty approvals, concentration and fees – allows the firm to opine on programme performance. Critically for future-proofing programmes, Pierpoint works with clients to ensure their ESG investment philosophy is reflected in their securities lending activity.

Pierpoint and collateral management experts Margin Reform have each partnered with ServiceMatrix to generate service benchmarks. Beneficial owners can now benefit from an authoritative take on how they are being served, based on frank appraisal of service partners’ strengths and weaknesses, with actionable data to drive improvement.

We encourage you to take a look at ServiceMatrix and its definitive questionnaires for securities lending and collateral management, developed in conjunction with prestigious institutional investors and the experts at Pierpoint and Margin Reform. Complete one or both questionnaires to benefit from complimentary access to the corresponding detailed report. Now is your opportunity to reward strong performance and provide frank guidance enabling service providers to make informed decisions on addressing shortcomings.

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