Securities Lending, Repos & Collateral Management

This Euromoney Training course focuses on the international securities borrowing and lending and repurchase agreements (repo) markets. Its practical approach will provide you with an insight into how financial institutions lend and borrow securities, utilise repos as well as the collateral management processes that are required to support these activities. You will be given a thorough and clear understanding of how these markets operate, the risks involved, the economics of securities financing transactions and the administration and IT infrastructures required to support and control them. You will gain working knowledge of the life cycles of securities lending and repo transactions. The course will also explain the growth and vital importance of securities lending and repos in the international financial markets. It will explore how these activities can improve market liquidity and be a benefit to the profitability of all parties involved. The teaching methodology used on this course combines formal theoretical instruction with frequent use of exercises and case studies. These are based on real situations experienced by the course director in his over thirty year involvement in this business. The course is intended to be practical and interactive, with delegates encouraged to ask questions throughout. The course content is intended to give delegates an understanding that will be of immediate practical use in the workplace. The lecturer will be available throughout the duration of the course to offer additional help if required. Delegates will be divided into to small teams to work together on the exercises that will include some simple calculations for which a calculator will be required. Attend this intensive and highly practical 3-day course and learn: The drivers and mechanisms of the international securities lending and repo markets Who the lenders are, the intermediaries and borrowers and how they operate The economics and benefits of lending The trading strategies and pricing mechanisms The life cycles of lending and repo transactions The differences between securities lending and repos and the documentation that governs them How dividends and other corporate events are impacted by lending and repos How to identify potential risks and understand the control measures to prevent them The collateral management processes including bi-lateral and Triparty arrangements The mark to market (MTM) process and the mechanisms for managing collateral The collateral and counterparty risks Who should attend? This course has been designed for anyone who wishes or needs to know about securities lending, the repo markets and collateral management including: Senior and middle management in financial services Operations Managers from investment banks, broker/dealers, prime brokers, fund managers, pension funds etc. Pension Fund Trustees Middle Office and Risk Managers Treasurers Product Controllers Internal and External Auditors IT developers (focused on operations or Securities Financing) Business Analysts and Consultants Compliance staff Regulators Graduate and Management Trainees
Day 1 Securities Lending and Borrowing (SL) Introduction to Securities Lending Background and historical context of the securities lending market What is securities lending? Why it is important Securities Lending Market Participants Who are the lenders? Who are the borrowers? Who are the intermediaries? The Economics of Securities Lending How the lender benefits How the borrower benefits How the intermediary benefits Cash versus non-cash collateral How fees are calculated Pricing-‘Specials’ versus General Collateral ‘GC’ Margin (or ‘haircut’) requirements Case study: Calculating fees on SL trades Exercise Corporate Governance and Securities Lending The beneficial owner Authorising securities lending The legal position and documentation Lenders rights Voting Case study: How the use of SL can be abused-The Maxwell case What Creates the Demand for Securities Lending Trading strategies Short selling Arbitrage Fails management Case study: Security borrowing to facilitate a convertible bond arbitrage Day 2 Life Cycle of a Securities Lending Transaction Striking the deal Booking the deal Confirmation Settlement What happens if the transaction fails Recall and termination Billing Systems and administration Exercise: Fails management and borrowing. Using a broker/dealer fails report, we will determine securities borrowing requirements Overview of Securities Lending Trading Platforms Electronic trading platforms How do they work The benefits Automatic Lending and Borrowing Who offers the service What are the benefits Why it needs to be managed Case study: Automatic borrowing going wrong Dividends and Corporate Actions How are corporate actions treated in an SL transaction Voting Tax issues and SL What are the Risks in Securities Lending and Borrowing? Borrower risk Collateral risk Cash collateral risk Intra-day settlement risk Operational Risk Legal risk Reputation risk Recall failure Buy-ins Case study: What happens when you cannot return borrowed securities – a buy-in Repos Sale and Repurchase Agreements (Repos) Background and historical context of the Repo market Reasons for the growth of the market The Market Participants The borrowers (or sellers) in a repo The investors (or buyers) in a repo The brokers Types of Repos The ‘classic’ repo transaction A reverse repo A sale/buy back Difference between repos, sale/buy backs and SL Why are Repos Used Benefit to the seller Benefit to the buyer Terms of Repo Transactions Open repo Overnight repo Term repo Repo rates and how they are determined Exercise: Using a dealers trade sheet decide repo and Securities borrowing requirements Day 3 Repos continued Repo Agreements Bi-lateral repos Hold in custody (HIC) versus delivery repo Tri-party repos Who provides tri-party arrangements Equity repos What are the Repo Dealing Risks? Counterparty/credit risk Collateral/issuer risk Market risk Operational risk Legal risk Stock specific risk FX risk Exercise: As Pension Fund Trustees, you have been asked to consider lending of the Funds securities assets. What questions should you ask? Collateral Management What is Collateral? Background and historical context of collateral What constitutes collateral in financial markets How it is used Products supported OTC derivatives collateral Collateral Usage Cash versus non-cash collateral G10 government securities Other collateral The ISDA collateral survey Collateral Support Annex (CSA) Collateral Management Infrastructure In-house versus vendor solution Documentation and legal agreements Bi-lateral and Triparty arrangements Who provides the Triparty solutions Central counterparties (CCPs) How do the CCPs operate Managing Collateral Agreeing a collateral schedule Agreeing a margin threshold Calculating margin Mark to market Haircuts Regularity of margin calls Monitoring and reconciling collateral receipts and deliveries, custody and settlement Substitutions Collateral arbitrage Dealing with coupon interest and corporate actions Case study/exercise: Drawing up a collateral schedule Collateral Risk Operational risk Market risk Concentration risk Legal Risk Valuation risk FX risk Increased overhead Course summary and close