Lesson 12 of 25 · 6 min
What triggers an eligibility review
Reviews are mostly fired by a data field changing, not by a person forming an opinion about a particular account.
Eligibility is not assessed once at origination and left alone. It is re-tested on a cycle and re-tested on events, and almost all of the events are mechanical.
The cyclical part is simple: every pledged position is re-run against the current schedule on the nightly cycle, and a fuller review happens whenever a new schedule version takes effect. The event-driven part is a set of monitors. A price crosses a floor. A trailing volume average drops below a threshold. A rating changes. A corporate action is announced. Trading in a security is halted. A filing appears indicating a restriction or an insider relationship.
There is one trigger that has nothing to do with the account at all. Institutions monitor aggregate exposure to each issuer across their entire lending book, and when that total approaches an internal ceiling it prompts a review of every borrower holding the name. The review arrives because of what other people are holding. It is the one trigger an account can neither generate nor avoid, and lesson 24 takes it up in full.
The proportions are the part worth carrying away. On a book of tens of thousands of monitored positions, the overwhelming majority of flags each month are produced by a threshold being crossed in a data feed. Human-initiated reviews exist but are a rounding error. The system is not watching you; it is watching fields, and you are attached to some of them.
Key terms
- Eligibility review
- A re-test of whether a pledged holding still qualifies for its row on the schedule. Triggered mostly by data, occasionally by a person.
- Monitor
- An automated test watching one attribute — price, volume, rating, corporate action — and raising a flag when it crosses a stated level.
- Book-level trigger
- A review of many borrowers at once, prompted by the lender's total exposure to an issuer rather than by any single account.
Worked example
A month of flags on an illustrative book
41,900 pledged positions monitored across all borrowers. One calendar month.
- Positions flagged for review
- 612
- Flags from a price crossing a floor
- 238
- Flags from a volume test
- 147
- Flags from corporate actions and rating changes
- 189
- Flags raised by a person reading something
- 38
- Share of flags generated without human input
- 93.8%
1.46% of those monitored.
574 of 612.
Thirty-eight reviews in a month began with a judgement. The other 574 began with a number changing in a file.
Check yourself
A lender monitors 28,400 pledged positions and flags 1.75 percent of them for eligibility review in a month. Seven percent of those flags came from human review rather than an automated monitor. How many flags were machine-generated?
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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.