Process objective
Ensure risks are defined and controlled in all markets and that returns are commensurate
Process requirements
Service providers should offer securities lending services at least in major markets. Ideally, their lending program should extend to all markets where securities lending is permitted. There should be broad coverage of instrument types to meet client demand. Any program must have a strong risk management discipline as its foundation, ensuring that all risks are clearly defined and that satisfactory control objectives and procedures are in place. The risks include counterparty exposure, collateral investment risk, the risk of interruption to trading activity and sell fail risk. In evaluating the risks, particular attention should be paid when moving from major to emerging markets.
Volume or value approach Service providers typically act in the capacity of agent rather than as principal. They match a client's portfolio to a number of securities borrowers. Approaches vary from "volume" to "value". The former entails providing access to a large array of borrowers and seeking to maximise the proportion of a portfolio which is lent. The "value" approach uses a select list of approved borrowers and emphasises lending revenues in place of volumes.
Fair treatment An important feature of a securities lending program is a suitable algorithm to ensure each participating client is treated fairly and equitably as regards the opportunity to loan their securities. Preferably, this algorithm should ensure equal opportunity in generating lending fee income relative to the value of assets available for lending.
United States
subscription choices
my profile
