SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

GLOSSARY

A central securities depository that settles trades in international securities and in various domestic securities, usually through di- rect or indirect (through local agents) links to local CSDs.

International central securities depository (ICSD)

International Swaps and Derivatives Association

ISDA

International Securities Lending Association

ISLA

Recognition in law as the owner of a security or financial instru- ment. It is usually represented by holding “legal title” and some- times distinguished from beneficial ownership/interest. See legal title and beneficial ownership.

Legal ownership

The risk of loss because of the unexpected application of a law or regulation or because a contract cannot be enforced.

Legal risk

One recognisable or enforceable in law or one which is complete and perfect as regards the apparent right of ownership, and pos- session, which may carry no beneficial interest.

Legal title

The risk that a counterparty will not settle an obligation for full val- ue when due, but on some unspecified date thereafter.

Liquidity risk

A condition that the buyer or holder of securities owns more secu- rities than it contracts to deliver. See short sale.

Long position

An equivalent payment made by the borrower (buyer) of securi- ties to the lender (seller) in lieu of actual dividends or other income earned on the securities (net of any applicable taxes), which the lender (seller) would have received if it had not lent (sold) the se- curities. The amount or percentage by which the collateral value exceeds the value of securities (funds) on loan (e.g. 2%, 5%, etc). It some- times refers to the total value of the collateral as a percentage of the loan value (e.g. 102%, 105%, etc). Margin serves to reduce replacement cost exposures resulting from changes in market prices. Initial margin is deposited at the start of the transaction. On the other hand, variation margin is called to deposit following the revaluation, through marking to market, of securities or financial instruments that are subject of unsettled transactions. A demand for additional funds or collateral, following the marking to market of a securities lending transaction, if the market value of underlying collateral falls below a certain level relative to the loaned asset. Similarly, if the value of the underlying collateral as- sets, following their revaluation, were to exceed the agreed mar- gin, the return of collateral may be required.

Manufactured payment/ dividend

Margin

Margin call

Securities Lending & Repo markets | page 65