How have the data demands of your clients developed in the past 12 months? Are they making the most of your services?
The data demands of our clients continue to evolve as the transparency demands on the securities financing business increase due to enhanced client interaction, regulatory changes and corporate pressure to make financing businesses more efficient and connected, such as centralised funding, interoperability with prime brokerage, and synthetics.
This is evidenced by the growing demand of our client base to ingest both current and historical data sets to power more quantitative strategies for their clients along with increased interest in our independent consulting and benchmarking capabilities.
These are two examples where IHS Markit’s years of comprehensive historical short interest data supports off-balance sheet alpha generating strategies designed to work within the new regulatory framework.
By combining our proactive account relationship management with small and medium enterprise product specialists in all regions, we are working with our clients to ensure they are taking every advantage of our market leading position in the short interest data field.
We’re also looking forward to hosting our annual London Securities Finance Forum on 28 March and I would encourage anyone interested in attending to register soon. Highlights this year include a European Securities and Markets Authority keynote on the Securities Financing Transactions Regulation (SFTR) and a panel looking at fixed income lending, which is fast becoming one of the industry’s key revenue drivers.
What are the main trends that IHS Markit’s data has picked up on in the opening months of 2017?
Overall, industry revenues are tracking roughly where they were at the same point a year ago. However, the industry’s revenue drivers have shifted from equities to fixed income.
This year is proving to be quite challenging for equities lending and we’ve seen revenues atrophy by 15 percent year-to-date. Markets have been a lot quieter over the last couple of months compared to the same period last year, which has driven down the average balances seen year-to-date by 5 percent.
The value of assets in lending programmes has also increased by 20 percent in the past 12 months as markets rebounded. This has had a cooling effect on fees, which are down by 15 percent on average. Last year’s runaway specials, such as Tesla, have also come off the boil, which hasn’t helped things.
One country that is bucking the trend is Japan. It was a runaway success last year and revenues from the country have continued to hold up as the fees needed to borrow Japanese equities have climbed ever higher.
Disappointment in equities has been outweighed by fixed income lending where revenue is up by roughly 50 percent so far this year. This is driven by an insatiable demand for high-quality liquid assets as high-quality government bonds have seen their revenues jump by over 70 percent.
Interestingly, the improved revenue figures have almost entirely been driven by lenders being able to achieve better fees for their government bond loans as balances of government bonds have only increased by 10 percent. This represents an opportunity for lenders that have the ability to lend their assets out to take advantage of this developing opportunity.
Cash reinvestment, especially for USD cash balances, has also been another industry success story and we’re seeing the industry generate over 45 percent more revenue from cash reinvestment so far this year than at the same point in 2016
IHS Markit recently partnered with Pirum for an SFTR solution. What sparked this pairing and how will your joint offering tackle the challenges?
Our partnership with Pirum stems from our desire to offer the best possible SFTR reporting solution. We already do some matching with our data and benchmarking services. Pirum is the recognised industry leader in that space, which is why we chose them as our partner to provide the matching engine for our solution.
Combining both firms also frees our development resources to focus on IHS Markit’s key strengths in data handling. You can’t overemphasise how important data handling and management will be to successfully tackling SFTR and we wanted to focus on this particular part of the challenge to ensure that we deliver a truly world class solution.
There are also benefits in terms of data connectivity and our combined reach means that either one of our firms currently has data pipes connected to more than 95 percent of the industry.
Given the current trend of back-office cuts, are you seeing more uptake of your services in the past year?
While we can’t attribute it to ‘back-office cuts’, we have experienced an increased reliance on our data for enhanced analytics. Many firms cannot dedicate the same amount of ‘research analysts’ to predictive/quantitative efforts so we have had unprecedented demand for interesting and creative charts and data usage.
The industry’s tilt towards growing reliance on fixed income lending has also opened up some opportunities for us as IHS Markit has a strong track record of delivering solutions to the bond market.
An example are the bond liquidity scores that we recently made available on our web portal. These scores give traders an indication of a bond’s cash market liquidity, which is a key consideration when selecting whether or not to lend out an asset and how much to charge for it.
Looking further forward, we have a very disciplined investment strategy for our product development and are proactively shaping our product delivery to suit our clients’ evolving needs.