Collateral Management

CHAPTER 9Securities Lending & Borrowing and Collateral – Introduction to SL&B

This part of the book is targeted at readers that have had no exposure to or limited exposure to the subject of securities lending & borrowing.

 

Securities lending & borrowing trades are a very popular and flexible mechanism by which securities are lent against receipt of either cash collateral or non-cash collateral (securities) provided by the securities borrower.

Along with repo trades, securities lending & borrowing trades fall within the general grouping of transaction types known as securities financing.

This part of the book (Part 3) describes the reasons for the lending and the borrowing of securities, the benefits to both lender and borrower, the various methods of lending and borrowing, and the role collateral plays in such trades.

As the motivations differ considerably behind a firm wishing to 1) lend securities, and to 2) borrow securities, these subjects are described separately and in that sequence.

9.1 INTRODUCTION TO SECURITIES LENDING

Definition of securities lending: the temporary loan of a specific quantity of a specific share or bond, to a borrower, against receipt of collateral, for return at a later date.

 

For those institutions that purchase equity and bonds, once those purchases are settled, those securities will remain within their account at their central securities depository (CSD) or custodian, until sold or utilised in a different transaction; the term ...