Finadium: Best Practices in Risk Management for Securities Finance

Finadium has conducted an investigation on how large market participants in securities finance manage risk. Our coverage includes how risk managers are positioned in the organization, what methodologies are employed, and the types of risks being evaluated. The report concludes with what risk managers in securities finance tell us are their next steps for organizational and product development.

While it was not difficult to identify risk managers in securities finance in this report, it became a complex matter to define current best practice. Across prime brokers, dealers, agent lenders and beneficial owners, each firm or group of firms had their own ideas about what risks were most important. This results in a divergence in what risks are measured and how organizations are prepared to respond to market dislocations. At the same time, there is a sense of what best practice should be among the professionals we surveyed. Managers spoke about key metrics and ways of looking at risk that suggest a cohesive view is possible, although it may take greater industry coordination to get there.

Based on our conversations, Finadium has identified 14 best practices in risk management for securities finance that can be followed by any organization in the value chain. These range from organizational set ups to the quantitative methodologies used for risk analytics. While the specific needs of beneficial owners may vary widely versus agent lenders, dealers and bank borrowers, and each type of firm will find the metrics that matter most for its own use, these guidelines set the stage for an industry-wide best practice discussion that can serve to make not just securities finance, but institution-wide risk management more effective.

This report should be read by any market participant interested in risk management in securities finance. It may be most useful to risk managers themselves to benchmark against their peers. It should also serve regulators, technology firms and business managers interested to assess the strengths of their organizations.

A direct link to the report for Finadium research clients is

For non-subscribers, more information is available here.

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