Trading of Securities Lending

An in-depth examination of 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

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Download: Course Outline

Stock Loan Trade Fundamentals

Structure of the Trade:
- The Fee and how it is paid
- The types of stocks being loaned
- Basic Haircut
- Shares as Collateral
- USA Stock Loans (Cash as Collateral):
  - Rebate rates
- Securities trading course 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
Securities lending training 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:
- Securities trading training exercise: Calculating the call
- Who makes the call and when?
Why are the Stock loan securities 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
- E.g.: 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 to structure a securities loan
A technical analysis of the role of the Securities Lending Agreement and how it affects “Legal” and “Beneficial” ownership
Understand how to use “Haircuts” and reduce the risk to the lender
Gain knowledge of the collateral types used in trading
Understand who is involved in these trades, such as pension funds, custodians, hedge funds, etc and 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 to trade Securities 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 at the structure of these trades, who is involved and what their motivations are.
You will learn how Pension Funds and Insurance Companies are often the lenders of stock. As well as how this dictates the structure of the trade, with collateral always being delivered first, to protect the lender.
Participants will learn 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 and market trading are becoming digital.
How Corporate Actions can have a big impact on trades. How “Manufactured Dividends” operate.
Securities trading course participants will appreciate how to achieve Dividend Arbitrage. We also assess the risks involved.
Gain a fundamental analysis of all the risks, from Credit and Market Risk to Settlement and Operational Risk.
Securities trading training is both practical and interactive. We provide many examples and exercises to ensure participant understanding.

The Trading of Securities Lending course is perfect for professionals working across various sectors of financial markets and securities trading:

If you are a stock trader looking to gain a solid long-term understanding of the mechanics of securities lending, trading platforms, transaction management and ways to enhance trading strategies
Investment managers seeking to learn how securities lending can affect portfolio returns and the associated risks
Custodians who wish to further their knowledge of the operational aspects of securities lending
Settlement professionals learning how the settlement process is affected by these types of transactions
Middle office personnel intent on furthering their trading skills and understanding how securities lending fits into broader financial systems
Risk, audit and compliance professionals who need a comprehensive grasp of the associated risks, regulations, and compliance issues within securities lending

This program takes an in-depth look at the participants and their motivations in the Securities Lending market. This robust securities trading course explores 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. Redcliffe presents the core principles to participants in an engaging, structured and clear way.

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