What is the main focus at IHS Markit?
Before joining IHS Markit, I had the advantage of being a client for many years—all the way back to predecessor company Data Explorers, which IHS Markit acquired in 2012. IHS Markit paved the way for greater transparency in the securities finance industry by developing the first performance measurement tools. Working at IHS Markit, two things have quickly struck me: the first is the level of commitment across the firm to our securities finance business (we currently have 75 people committed to the business); the second is the dedication of the firm in its drive to deliver information, analytics and solutions for firms operating in financial markets. We are focused on identifying interdependencies across complex industries to truly understand why things happen. In turn, this enables us to see the big picture and all the connections, while providing our clients with insights and perspectives on what really matters.
IHS Markit Securities Finance’s three main initiatives are:
1. Enhancing the experience for clients by rebranding our tools, launching an insightful home page and implementing an exciting programme through the year that is focused on user experience.
2. Rolling out a robust programme to vigorously engage with our clients, ensure they are maximising their usage and value from the vast array of data, tools and analytics we have available.
3. Building a two-year, forward-looking investment plan where every month we implement new or enhanced functionality.
In Q4 alone, we implemented:
• Related corporate bond data: Helps long/short equity, credit and credit default swap (CDS) traders gain an aggregate view across the capital structure with popular metrics like utilisation, demand supply and borrow rate information.
• Borrower performance measurement: A powerful and intuitive tool for borrowers to benchmark their borrow rates compared to other borrowers in the market.
• Peer group analysis tool: A new tool available to our lenders to provide users with an enhanced securities lending performance comparison with the best-matched peer group.
• US public short forecast and public disclosure: The US short forecast model creates a weighted-average forecast for each security, considering additional inputs such as correlations to securities lending balances, dividends and total volume traded.
I am pleased to say we are making great progress in all these areas and are strongly executing our 2019 product roadmap.
Are there any other priorities for the IHS Markit Securities Finance business in 2019?
We are very much focused on delivering tools and solutions that enhance our clients’ businesses. To this end, some other key priorities include:
• Collateral: We are implementing new collateral characteristics that better align with the collateral that funds accept. This, in turn, will harmonise the approach for performance measurement and allow for more precise what-if scenario analysis. But we are going even further by aiming to collect collateral data at the transaction level to provide greater insight on volumes and rates for each security by collateral type. Combining the two aspects, we will be able to create attribution of like funds where collateral choice has led to greater or lesser performance, even for funds with the same collateral characteristics.
• Data: We are passionate about growing our data pool in terms of depth and breadth. We have already had numerous successes attracting new data contributors and this will remain front, line and centre in everything we do. Clients are seeing great benefits from our global intraday data offering, which is growing quarter by quarter and provides the most timely view of market sentiment and activity.
• Beneficial owners: We are rolling out a completely new suite of services to beneficial owners, which includes helping them establish the appropriate policies/framework for securities lending, governance and oversight tools including board and executive reporting, revenue estimate validation, providing regular actionable information to assist with programme management (including multi-agent consolidated reporting and securities lending performance measurement) and measuring the inherent risk of lending activities and/or establishing a risk budget. So far, the reaction has been very positive as the focus is helping beneficial owners in the areas that have the most relevance to them.
• HQLA: This has been the buzz across the industry for the last few years. But evaluating whether a specific bond issue qualifies as high-quality liquid assets (HQLA) requires complex daily testing of each issue to ensure it qualifies as HQLA in accordance with Basel III requirements. IHS Markit already undertakes this analysis and we are looking to provide our clients with a supplementary service that shows exactly what inventory, loan volume and collateral (both at industry and portfolio level) is HQLA.
• Analytics: We are renowned for our analytics, but we will be significantly overhauling borrower and lender league tables with more value-added data such as fee bucket, market share and possibly collateral type, etc. We are also exploring prototypes of a securities finance best execution reporting solution. Under the second Markets in Finance Instruments Directive (MiFID II), this is becoming an increasingly complex area and some of our clients have asked if we can help create a solution given we have three plus million daily transactions within our dataset.
• Short squeeze model: We are in the final throws of releasing a multi-factor model designed to predict short events. For crowded trades, the model seeks to identify potential catalysts that will lead to a short squeeze, including earnings forecast, RavenPack news data and abnormal trading volume.
• Public disclosure expansion: We continue to grow our global public disclosed short interest data set, and are in the process of adding Japan to our already robust offering. We are also looking at the addition of other markets.
The bottom line is that these are very exciting times at IHS Markit. We are building upon our core strengths of data, independence and leading client service, and continue to focus on making our services relevant. This will bring additional value to our clients, who can take advantage of our unique firmwide datasets and intelligence.
What’s your view around performance measurement for beneficial owners?
Beneficial owners have typically been less focused on performance measurement, not in the least because there is an almost unspoken sense that it seems to give rise to “everyone seems to win”. From a purely mathematical perspective, when using average returns as the benchmark, in dollar value terms, there should be an equal proportion of under and over performance. But feedback from beneficial owners does not indicate this. There are several reasons why this happens, including amongst other things, a differing view around inventory, timing, optional trades, collateral and peer group size. While there are no wrong or right answers, having a global industry-wide standard, which all participants adhere to, will eliminate inconsistencies and lead to a far more trusted and utilised methodology. The way to achieve this is industry collaboration. This is why IHS Markit in conjunction with the International Securities Lending Association (ISLA) has announced it is going to spearhead an industry-wide working group to address the challenges with the aim of issuing a global Securities Lending Performance Measurement Charter.
What differentiates IHS Markit in securities finance data and analytics?
• Depth and breadth of coverage: We have the broadest range of data (over $20 trillion of inventory and $2.3 trillion of loans) across the widest range of counterparties, with 12 years of daily historical data available through all product platforms. We have no restriction in the clients we can work with and receive transaction information at each stage of the value chain, providing the clearest view into the lending and financing markets. The depth and breadth of our data was evidenced in our 2018 Year in Review publication where we reported $10.7 billion of revenue.
• Innovative analytical tools: Such as borrower benchmarking, league tables and stock screening to allow critical differentiation versus peers and to identify revenue opportunities. Corporate bond aggregate data provides transparency in activity across an issuer’s capital structure, unearthing new loan opportunities and allowing directional interest to be covered using other issues from the same issuer.
• Firmwide securities finance focus: Datasets and expertise in related activities such as dividend forecasting, delta one, Securities Financing Transactions Regulation (SFTR), HQLA analytics and repo curve generation for trading and risk management via TOTEM, the industry leader in alternative data.
• Product specialists: Provide clients with expertise and a single point of contact to ensure that clients maximise the business value of our data, tools and analytics.
How is SFTR implementation progressing?
After what feels like an eternity, and with many false starts thrown into the mix, it now looks like the SFTR kick off is finally upon us. On 13 December 2018, the European Commission finally adopted the Level II legislation that was presented by European Securities Markets Association (ESMA) in their final report submitted on 31 March 2017.
The legislation is now with the European Parliament and Council for approval, which we expect to be completed by April 2019. As has been widely publicised, once the regulation is officially written into law, the first reporting obligation will take place one year later—meaning a go-live around April 2020 for financial institutions.
While our more than 40 Design Partners and clients have already begun implementing our SFTR reporting solution, this news was the signal that many other firms in securities finance were waiting for. They are now ready to start their respective SFTR projects and allocate resources.
With a light graphical user interface version planned for April 2019 and a beta version planned for November 2019, the development of the IHS Markit SFTR platform is entering an advanced stage.
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