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Securities Borrowing & Lending

Securities Borrowing & Lending. 05 June 2008. What is Securities Borrowing & Lending?. Securities Borrowing & Lending (SBL) can be defined as an outright transfer of securities from the Lender to the Borrower. Borrower provides collateral for the duration of the SBL loan.

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Securities Borrowing & Lending

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  1. Securities Borrowing & Lending 05 June 2008

  2. What is Securities Borrowing & Lending? • Securities Borrowing & Lending (SBL) can be defined as an outright transfer of securities from the Lender to the Borrower. • Borrower provides collateral for the duration of the SBL loan. • At the end of the loan, there is a transfer of equivalent securities and equivalent collateral. • Delivery of Collateral • BorrowerBroker • Delivery of Securities • Delivery of Securities Fee • Income • Lender

  3. Operational Work Flows Loan Initiation Delivery of Collateral Delivery of Securities Payment of Lending Fees Management of Collateral & Entitlements Return Securities Initiate Return/ Recall of Securities

  4. Benefits of Lending • Earn income, enhances the investment performance of the securities portfolio • Offset services’ costs like custody fees • Provides liquidity to markets

  5. Benefits of Borrowing • Facilitates failed settlement • Covers short positions • Supports derivatives activities • Short selling • Provides liquidity • Provides floor price

  6. Considerations for Borrower • Strategy • Duration of loan – extended borrowing can erode returns • Loan costs • Corporate actions • Availability/ Liquidity

  7. Considerations for Lender • Borrower default • Quality of collateral • Day-light exposure • Settlement Delays • Market Inefficiencies • Loss of legal ownership • Loss of voting rights

  8. Operational Considerations • Methods of delivery and loan recall • Revaluation (mark-to-market) – margin call • Dealing with Corporate actions • Linkage to other operational functions • Reporting and ledger balances • Credit Risk - counterparty

  9. Terms of Agreement • What would the lender of securities want to include in the Agreement? • Term • Rate basis • Right to recall • Collateral – Haircut/ Discount/ Substitution of Collateral • Corporate Actions • Events of defaults

  10. Terms of Agreement • What would the borrower of securities want to include in the Agreement? • Term • Rate basis/ Fee Structure • Right to recall • Collateral • Computation of Margin call • Guarantee of Loan • Minimum loan period

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