Transparency in securities lending

Christel Carroll, co-head of US Client Service and Relationship Management for Goldman Sachs Agency Lending (GSAL) shares her thoughts with Global Investor/ISF on data and transparency.

This article is part of the 2023 Summer Magazine, which can be accessed here.  

How has data availability and transparency impacted securities lending decision making?

Data has become a critical component in decision-making across all functions of our business. By integrating measurable data into business applications, we can empower stakeholders to make more informed decisions. The increased transparency helps reduce risk and identify potential opportunities.

On our Trading desk, data drives actionable insights for improved client performance. Our system includes pre-trade analytics, algorithmic trading to automate trade flow within specific pricing and utilisation bands and ongoing revenue optimisation whereby existing loans are evaluated against multiple internal and external data sets to identify re-rate opportunities as market conditions change.

Within Operations, business intelligence tools are utilised for surveillance, oversight, and escalation to help maintain a robust control environment. Effective risk management involves getting the right information to the right people at the right time. By harnessing data, we can monitor trends in operational performance for both us and our counterparties across key risk areas.

How is the demand for transparency in securities lending increasing, and how are market participants adapting?

The role of data within the securities lending industry is evolving as client behaviour shifts and data is increasingly viewed as an asset. Consequently, client interest for data is growing on various fronts.

We have seen an uptick in clients looking to supplement or replace traditional lending reports with detailed transactional data delivered via a secure automated data feed or API. These clients often consume securities lending data directly into their systems for use across their organisations. For example, lenders can view exposures broadly across business lines, consolidate performance metrics across lending providers, and perform independent oversight of lending activity.

The interest in securities lending data has also expanded beyond traditional oversight functions in treasury and operations. More than ever, we are seeing portfolio managers and trading functions utilise securities lending data as a tool for investment decisions.

Another emerging trend has been the demand for information beyond securities lending. We have seen a rise in client interest for complementary data that can aid in decision-making or provide context to securities lending performance. For example, we have seen a growing demand from our lending clients for proxy information to assist in their decision to lend or vote. We also provide clients with access to a wide array of market intelligence from the broader Goldman Sachs organisation.

In this age of increased automation and transparency, it is important to recognise that data does not replace the relationships we have with our clients. GSAL’s philosophy has always been to partner with our lending clients to develop a customised program that meets their needs and objectives. By incorporating data into our workflow and systems, we are better equipped to service our clients. It enables us to be nimble and adapt to client needs such as fine-tuning lending parameters to optimise revenue within a client’s risk profile.

What technological advancements enhance data analysis in securities lending, and how do they improve risk management and efficiency?

With the abundance of data available comes a growing need for tools to analyse and put meaning into data. At Goldman Sachs, we leverage Marquee, a digital platform that provides institutional clients with powerful analytics, insights and data from across our Firm. Through guided and free form data exploration, clients uncover the story in their lending program by identifying revenue drivers, trends and risk exposures.

Clients can easily monitor adherence to customised lending parameters with an exception-based program health dashboard. We have found that our clients appreciate our thoughtful approach to data as it allows them to keep a pulse on their lending activity without deploying significant resource to oversee the program.

Clients also have access to the broader Marquee tool set and data catalog to enrich securities lending data with resources such as GS Research publications, desk commentary and webcasts, real-time metrics for global indices, ESG data from GS SUSTAIN, and more.

In that sense, GSAL clients benefit from the suite of data tools that have historically been lacking across the classic Agency or Custodian Lending landscape.

How has regulation influenced data and transparency in securities lending?

There have been numerous regulations introduced in recent years impacting securities finance. These regulations underscore the need for efficient operating processes as access to accurate and timely data is key.

Automation and straight through processing are core components of our operating model. We utilise a combination of proprietary tools and industry utilities to maintain strict operational standards. Use of industry utilities allow us to seamlessly connect to our counterparties for automated reconciliations.

In this dynamic regulatory environment, it is important lenders work closely with their lending agent to fully understand how regulation may impact them and the resources available. By partnering with a strong global organisation, clients can gain access to a broad range of institutional resources.