The securities lending market is a voice-driven, opaque if not completely dark market, according to Manny Santayana, global head of sales, marketing and distribution at S3 Partners, a provider of data analytics technology.

“You’ve got your primes, custodians, lending agents, options makers, swap dealers, and it’s a very finite universe of people that basically operate within a voice-driven environment,” Santayana told Markets Media.

As managing director and global head of sales for Credit Suisse’s Advanced Execution Services, Santayana saw the evolution of FIX connectivity, as well as advances in smart order routing, algorithmic trading and high-frequency trading. “This environment– securities finance–is the ‘mother of all dark pools’,” he said.

Measuring securities financing cost is complicated “because it is as if every dealer produces data in its own foreign language,” said Santayana.

S3’s flagship analytics product, BLACKLIGHT, allows a common language to be “spoken” and empowers asset managers to capture and standardizes prime, custody, swap and contractual data.

“What BLACKLIGHT does is translate all those languages into English,” said Santayana. “Our translation engine, called PIX, allows the client to seamlessly collect, analyze and action stock lending, margin, collateral, and counterparty risk data from all the primes, all the swap dealers and custodians.”

In a securities lending transaction, a security is temporarily transferred to a securities borrower, who may use it for short-selling, hedging, dividend arbitrage, or market-making. Securities lenders often share revenues with agent lenders, who broker transactions, provide accounting services, manage transactions, and reinvest the cash collateral.

The size of the global securities lending market has held about steady for the last several years at an average daily balance outstanding of $2 trillion, according to reference data provider Markit.

Getting precise estimates of the size of the market is complicated by large gaps in data, according to the Office of Financial Research. According to a 2013 report by the OFR on the asset management industry, which composes a large chunk of the securities lending market, data to analyze aggregate exposures and asset holdings of separate accounts across asset management complexes are limited. Some private data providers gather data on separate accounts, but asset managers provide these data only on a voluntary basis and these data are inconsistent.

According to a 2015 report by eSecLending, a securities lending agent, the regulatory landscape for securities lending, like many financial services, is changing rapidly.

“Some changes do not directly impact securities lending transactions, but they do impact those participating in the transactions,” the report said. “Consequently, the dynamics of securities lending will vary on a client-by-client, trade-by-trade and borrower-by-borrower basis – a securities lending program is no longer a commodity. It is more important than ever before to understand how regulation will affect each lender’s program and react to these changes.”

Imagine Software, a provider of real-time portfolio management, risk and regulatory systems, is using S3’s technology to provide its clients with weekly updates signaling changes in global securities financing rates and borrow and loan trends.

S3’s Market Composite Rate (MCR) combined with Imagine’s analytics adds insight to Imagine’s implied market data, according to a release issued last month. S3’s MCR indicators will also help Imagine’s clients make better borrowing and lending decisions while managing their portfolios and collateral.

“Imagine is deeply embedded in the hedge-fund ecosystem,” said Santayana. “What Imagine is doing is pushing out our information to their client set to basically give them a heads up in measuring cost and see whether financing cost spills over into risk management.”

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