Building and automating formerly impossible data validation checks for security lending

Global investment manager

“Some of the data validation checks we do for securities lending were very difficult and time consuming before we had Duco. With Duco, the checks are performed instantly when we receive the files from our agency lenders. It’s a lot easier and, because it’s automated, there’s less risk involved.”

The customer wanted to take extra steps to ensure that the data from their third-party security lender was accurate. But the complexity of the data meant it was very difficult and time consuming to perform some of the checks they required as these had to be carried out manually. The flexibility of the Duco platform allowed the customer to perform thorough checks across all their lending and:

  • Automate Excel-based data quality processes
  • Swiftly identify where lending parameters were breached
  • Minimise risk for the business and increase confidence in data quality

The problem: Need for manual work blocking transparency

The customer wanted to ensure that their agency lenders were respecting the parameters and thresholds of their lending programme; for example, the percentage of securities in a fund that could be lent out, or abiding by lending restrictions on certain securities or regimes.

But in order to do this they had to manually check each report provided by their lenders using Excel formulas. These files could contain data on hundreds of different loans, all of which needed to be cross-referenced with various lending parameters governing fund, volume, regime, and so on.

Why Duco?

The customer was already using Duco to reconcile derivatives positions. The security lending team were able to see for themselves how flexible, simple and easy-to-use our platform was. The fact that the Duco platform can ingest files without pre-transformation meant it was possible to automate the data validation checks, which were themselves easy for the team to build thanks to our no-code functionality.

The outcome: Supporting business growth with automated, scalable controls

The customer has harnessed the capabilities of the Duco platform to ensure that they have robust, automated security lending controls in place to minimise risk as the business scales.

“In terms of onboarding a new fund, one of the considerations is the operational impact of doing so. As far as the parameter checks that we perform in Duco are concerned, there’s no operational impact because Duco has streamlined and automated those processes. Without Duco we wouldn’t have been able to grow our equity funds or expand into fixed income without additional resources.”

Mitigating the operational impact of fund expansion

When the customer first started using Duco for their security lending business they only had their equity lending programme. Since onboarding Duco the firm has not only been able to grow this business, but also expand into fixed income, which itself has expanded further since its initial launch.

Fully automated; goodbye spreadsheets

The customer’s lending checks are now almost fully automated. Files from agency lenders are submitted to Duco via Secure File Transfer Protocol (SFTP), either to update a reference data table or to feed a reconciliation. Each file could contain details of hundreds of different loans and numerous checks are required to ensure various thresholds and parameters have been respected.

The fact that Duco can ingest files in their native format, combined with the platform’s fuzzy matching engine, has removed the need for a lot of manual work. Even checks that were previously too complex to set up are now running in Duco and fully automated, adding additional governance for the business.

Reduced risk

If for some reason the third-party lender hadn’t been performing the data quality checks that they should have, the customer could have been left in a position where their lending parameters had been breached and they wouldn’t have known. This would have affected the firm’s efficiency and ability to make and settle trades. A lack of visibility over outstanding loans could lead to over- or under-lending, impacting the firm financially.

It’s for this reason that the firm is so committed to ensuring the accuracy of their data, and with Duco they can be confident they have a clear picture of their activity.