Use Cases & Applications
Capital Markets and Securities Finance

One of the best applications of the growing Credit Benchmark data set is in the counterpart ‘heavy’ Securities Finance industry, incorporating securities lending, repo and prime brokerage. Securities Finance market participants including beneficial owners, agents, and principal borrowers can leverage Credit Benchmark data to generate more trading opportunities.

Risk Adjusted Performance Measurement

IHS Markit’s Securities Finance collaboration with Credit Benchmark creates the industry’s first solution for integrating counterpart credit risk into securities lending inventory and loan activity.

The established IHS Markit Securities Finance performance measurement tool is being enhanced with Credit Benchmark consensus credit data.

Beneficial Owners can now independently evaluate their risk-adjusted-performance compared to their peers with equivalent creditworthiness.

Agents can demonstrate their capabilities to clients on a risk-adjusted basis.

Borrowers can identify the credit quality of their loan balances and the inventory made available to them – providing an invaluable insight into RWA – and driving “smarter buckets”.

Read: IHS Markit Securities Finance Credit Benchmark Brochure

Speeding up Onboarding and Access to Inventory

Speeding up the onboarding process increases access to inventory; building balances and driving revenues.

Credit Benchmark data assists you to identify the Beneficial Owners and Funds that are the best match for your business.

Using the data as part of your onboarding process, you can efficiently prioritize funds with a high credit consensus rating / low RWA and reduce your backlog.

Automated monitoring, surveillance and alerting of the large universe of funds informs decision making, drives efficiency and assists in regulatory compliance.

Monitoring surveillance and alerting matters because fund credit quality and RWA can change over time.

Agency Lending Disclosure (ALD)

The 2006 Agency Lending Disclosure (ALD) process is not fit for purpose and is a significant constraint upon the Securities Finance Industry.

The implementation of Securities Finance Transaction Reporting (“SFTR”) presents an opportunity to address this longstanding drain on resources.

The broader adoption of the Legal Entity Identifier (LEI) when combined with Credit Consensus Rating data advances will speed up this outdated process.

Read: Financial Counterpart Monitor

Read: ALD Onboarding Decision Tree

Request a copy of the CCP Monitor

Agency Reporting

Borrower Rating and Reporting

Many of the firms listed by agents as possible borrowers are unrated, making them difficult for Beneficial Owners to select.

Their selection is critical because Beneficial Owners act as principal in securities finance transactions.

Many borrowers are the unrated subsidiaries of rated parents lacking any formal parental guarantees.

Innovative agents are already incorporating Credit Benchmark Credit Consensus Ratings in their client reporting to provide unique information on the borrowers Beneficial Owners can select.

The creditworthiness of the borrowers is updated fortnightly and new counterparts, such as those Funds active in the growing Peer-to-Peer business and Funds managed by the same Fund Manager can also be included.

This transparency has expanded the approved borrower lists and increased the diversity of counterparts based upon credible “skin in the game” credit analysis, using supervised models.

Read: Borrower Consensus Report for Agents

RWA & Basel IV

Risk Weighted Assets (RWA) Challenges

Managing and optimizing RWA is a huge issue for securities finance participants, and it is far from a borrower-specific issue. Credit Benchmark is assisting a growing number of clients address this problem today.

The ability to mark-to-market your internal view of a counterpart’s creditworthiness and RWA versus the market informs your decision making and provides scope for challenges and debate based upon empirical evidence – not anecdotes.

Credit Benchmark provides an invaluable resource of consensus credit risk data on a large universe of hitherto unrated counterparts – especially “buy side” funds.

Basel IV – Changes Ahead

Progress with Central Clearing models and Pledge Agreements may be insufficient to protect the industry in advance of Basel IV regulations. The industry needs to ensure that the regulations do not have a harmful impact across the Capital Markets.

Under the forthcoming Basel IV regulations, banks’ internal ratings models will be set aside and unrated counterparts will carry a 100% RWA. Tens of thousands of high-quality but unrated obligors will attract this 100% risk weight. It is estimated that applying data from an external credit assessment institution (“ECAI”) could reduce the RWA dramatically, and produce a cost saving of 2 million USD per notional 1 billion USD of exposure.

Read: EU Capital Rules to Increase Buyside Trading Costs

Read: Basel IV Rules: The Impact Upon Capital Markets and the Securities Finance Industry

Read: Article from Banking Perspectives – Basel IV Requires Serious U.S. Review

Read: Article from Banking Perspectives – The Value of Diversity in Bank Credit Portfolios

Listen: Pierpoint Perspectives Podcast – Mark Faulkner Co-Founder Credit Benchmark talks Basel IV


Credit Benchmark are proud to support The Global Peer Financing Association (GPFA), a new association recently formed by a group of beneficial owners to create a more efficient way of engaging in peer-to-peer (P2P) securities financing transactions.

Four leading pension plans, California Public Employees’ Retirement System (CalPERS), Healthcare of Ontario Pension Plan (HOOPP), Ohio Public Employees Retirement System (OPERS), and State of Wisconsin Investment Board (SWIB) along with eSecLending, Osler, Hoskin & Harcourt LLP and Credit Benchmark, have come together to create the GPFA, with the shared goal to create a more efficient and actionable way to increase and encourage peer-to-peer trading activity in the securities lending and repo markets for the benefit of asset owners.

Getting permission to do business with unfamiliar and hitherto unrated counterparts is a significant challenge for any business manager. Credit Benchmark can help you overcome this challenge using credible consensus ratings.

Access to independent Credit Consensus Ratings facilitates the approval of new types of counterparts. Furthermore, the capability to automatically monitor and alert you to changes in counterpart creditworthiness is a valuable feature in building and maintaining confidence in your new counterparts.

Credit Benchmark data provides powerful empirical support for “enhanced custody” and can also assist Asset Managers to facilitate the efficient and regulatory-compliant crossing of transactions between Funds with different ownership and Boards.

Read: Global Peer Financing Association (GPFA) Press Release

Predictive Information for Tradable Securities

Independent research has found that Credit Benchmark credit consensus data complements and enhances IHS Markit’s short factor data when combined in portfolio constructions. This combination provides enhanced signals in both US and European equity markets, and stronger alpha for cheap-to-borrow (CTB) instruments than only using securities finance data fields.

The combined datasets between IHS Markit Securities Finance and Credit Benchmark provide unique insights into market sentiment from both securities lending market and consensus credit risk assessments from a macro to individual stock level.

One exciting observation about the new combined offering is that the Information Ratio (IR) in US instruments for CTB instruments have improved by 75% and European instruments by 45%.

This new data source amplifies and complements data sets which are already widely used by the “sell-side” and the “buy-side”. For those of you with a quantitative and curious mind, reading the original research is a must.

Read: IHS Markit Securities Finance & Credit Benchmark Research Note

Future Innovations

  • Collateral Management – “Rating the Unrated” – Credit Benchmark will help the industry expand the acceptable collateral universe by leveraging the Benchmark entity level Credit Consensus Ratings (already approved by 40+ banks) using an open source notching methodology.
  • Sponsored Repo – Credit Benchmark will assist sponsors to make decisions about the firms that they guarantee, expanding the sponsored universe, membership and liquidity and also facilitate ongoing automated monitoring and surveillance.
  • Credit Benchmark will work with the industry to define “open source” reference protocols which will enable pre-trade and post-trade reference points to bring necessary transparency and automation.
  • Credit and RWA transparency will enable agents to avoid the challenges of unilaterally overriding balance allocation algorithms and provide appropriate regulatory and compliance support for interventions.
  • In the future, Credit Benchmark data could be the catalyst to support dynamic margining in the Securities Finance Industry.
  • The Credit Benchmark dataset has broader applications than in Securities Finance. For example, it is valuable in bank resource management (BRM) and credit value adjustments (CVA).
  • We are working with the industry to provide a Basel IV solution that compliments the longstanding CCP and Pledge capabilities.
  • Industry classifications are a significant component of RWA calculations and we can provide intelligence in this critical field.

Use Cases:

Counterparty Risk Management
Credit Risk Management
Securities Finance
Supply Chain Risk & Trade Credit Insurance
Fund Management
Regulation, RWA & Capital
Accounts Payable & Receivable
Point-in-Time (PIT) Impairments
Onboarding, KYC & Relationship Management
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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk. Risk and investment professionals at banks, insurance companies, asset managers and other financial firms use the data for insights into the unrated, monitoring and alerting within their portfolios, benchmarking, assessing and analyzing trends, and fulfilling regulatory requirements and capital.