Trading of Securities Lending

An in-depth securities training course that fully examines trading to settlement principles, collateral management, and the associated risks.

A cosmic imager of a galaxy with billions of stars and vast clouds of gas and dust

A two-day Securities Lending Training course

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Download: Course Category Brochure | Course Outline

Stock Loan Trade Fundamentals

Structure of the Trade:
- The Fee and how it is paid
- The Stock being loaned
- Basic Haircut
- Shares as Collateral
- USA Stock Loans (Cash as Collateral):
  - Rebate rates
- Case studies
Lenders:
- Pension Funds
- Insurance Companies
Borrowers:
- Hedge Funds
- Investment Banks
Agents:
- Global Custodians
- Their role and how much of the fee do they get?

Sell/Buy Backs

Very similar product, but it can be very different
Sell/Buy Back pricing

Repo

Sale and Repurchase Agreements
Similar, but not the same

How Do You Make Money From Trading Securities Lending?

Matched trades … sourcing liquidity
Principal … buying portfolios from clients
Agency … taking a fee from best efforts lending

MSLA (Master Securities Loan Agreement)

How it works
Legal v Beneficial Ownership
Who gets the dividends?
Manufactured Dividends
Dividend Arbitrage:
- Price Arbitrage
- Tax Arbitrage
- Case studies

Short Selling

Borrowing to Cover Short sales
Profiting from short-selling
Exercise: Calculating the profit …. Or loss!

Securities Settlement Basics

RTGS at a CSD:
- DvP
- DFoP
Multilateral Netting at the CCP
Fails:
- Impact on Short Selling
- Cost of fails

Collateral

Cash or securities?
Margining
Haircuts:
- Haircut calculations
- Exercise: calculating the haircut
Margin Calls:
- Exercise: calculating the call
- Who makes the call and when?
Why the Stock loan securities are delivered after the collateral

Corporate Actions

It's not just dividends:
- Rights Issues
- Bonus issues
- Stock Splits and Reversals
- Etc
- Missed dividends… chasing the dividend

Collateral Management

Types of Collateral:
- Top quality Collateral v poor Collateral
- Haircuts based on types of Collateral
- Eg: Treasuries 2% - Stocks 15%
- Volatility
Advantages and disadvantages of different types of Collateral

The Risks

Credit Risk:
- Who is your counterparty?
- Who is your Custodian?
  - Sub Custodians
- Operational Risk
  - Collateral is always delivered first before the loaned stock
  - Missed margin payments
  - Period of Risk
- Legal Risk
  - Trading without the correct documentation
- Regulatory Risk
  - Breaking the Rules
  - Illegal Tax Arbitrage
- Concentration risk
  - Collateral Management Teams
- Liquidity Risk

Participants attending securities lending training can expect to:

Gain a deep understanding of how a securities loan is structured
Appreciate the role of the Securities Lending Agreement and how it affects “Legal” and “Beneficial” ownership
Understand how “Haircuts” are used to reduce the risk to the lender
Gain knowledge of the collateral types that can be used in trading
Learn who is involved in these trades, such as pension funds, custodians, hedge funds etc and understand their motivations
Understand the fundamental differences between Securities Loans, Sell/Buy Backs and Repos
Appreciate the role of short selling and the potential costs
Gain a thorough knowledge of how these trades are settled through DFoP settlement at the CSD
Learn how Securities are traded through lending and borrowing for negotiated fees in the active market

Securities Lending and Borrowing are essential for traders and investors who wish to take short positions. In this securities trading course, we look not only at the structure of these trades but also at who is involved and what are their motivations.
You will learn how Pension Funds and Insurance Co’s are often the lenders of stock and how this dictates the structure of the trade, with collateral always being delivered first, to protect the lender.
Participants will learn through securities trading training how the Securities Lending markets operate, with Custodians playing a big role in the supply of stock.
They will appreciate how prices of stocks to be loaned out are decided upon, and how the market is becoming increasingly digital.
You will understand how Corporate Actions can have a big impact on trades and how “Manufactured Dividends” operate.
Securities trading course participants will appreciate how Dividend Arbitrage can be achieved and the risks involved.
Gain a deep understanding of all the risks, from Credit and Market Risk to Settlement and Operational Risk.
Securities trading training is both practical and interactive, offering many examples and exercises to ensure participant understanding.

This Trading of Securities Lending course is suitable for anyone working in the following areas:

Traders
Investment Managers
Custodians
Settlements
Middle Office
RiskWe look at how the market operates
Audit
Compliance

This program takes an in-depth look at the participants and their motivations for being involved in the Securities Lending market. This robust securities trading course looks at how the market operates, and how trades are structured and settled. We take a very hands-on approach to each step in the process and examine the benefits to different parties and the risks!

Securities lending training examines the nuances of the lending market in great detail. From the fees charged, to how to calculate a “Margin Call” when more collateral is required.

This course provides an in-depth look at the Trading of Securities Lending, right through the life cycle. From Trading to Settlement, Collateral Management, Risk and more. The core principles of this securities trading course are presented to participants in an engaging, structured and clear way.

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