Securities lending is an additional, relatively low-risk way for investors to unlock the full potential of their portfolio. In decades of lending securities Investors and Securities owners have focused on competitive returns while balancing return, risk and cost.
There is a Capital at Risk.
With securities lending there is a risk of loss should the borrower default before the securities are returned, and due to market movements, the value of collateral held may have fallen and/or the value of the securities on loan has risen.
The market is organised through platforms which build and enable a proprietary securities lending infrastructure so that a lending activity is executed in the Investor or Securities Owner’s best interests and with prudent risk management.
Skilful risk management is essential
A basis for skilful risk management builds the Securities Borrowing and Lending Agreement. There is a conservative, low-risk approach and the integration of capabilities of our dedicated research, trading and risk management.
Proprietary Technology is required
A dedicated team works on custom-built reporting, operations and trading systems to help ensure transparency and operational efficiency.
Robust assessment of borrowers is essential
Only highly creditworthy borrowers based on conservative credit standards defined by a risk assessment team can qualify and are considered to be served in this Securities Borrowing and Lending Transaction.
The Benefits of Securities Lending
Securities lending is a way to unlock additional value of a portfolio of an Investor or Securities Owner. The Securities Lender will collect higher returns than would otherwise be received. Investors may benefit from securities lending in the form of better performance. How? Additional income is generated through the fee that it charges for loaning securities to a borrower.
There can be a Borrower default risk
Since the process involves lending securities, there is a risk that a borrower fails to return a borrowed stock or bond.
To minimize risk to investors, it has to be determined whether firms may be approved as borrowers.
An internal risk unit performs initial Due Diligence and regular borrower reviews. New transactions are systematically prevented if a borrower reaches its limits. As an additional safeguard there can be an indemnity available to safeguard in the event of a borrower default.