SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

GLOSSARY

The risk of losses in on- and off-balance sheet positions arising from movements in market prices.

Market risk

The practice of revaluing the securities collateral in a repo or the securities lending transaction using current market prices. Stand- ard practice is to mark-to-market daily. An agreement that sets forth the standard terms and conditions applicable to all or a defined subset of transactions that the parties may enter into from time to time, including the terms and conditions for close-out netting. Portfolio of assets and portfolio of liabilities having equal maturities. The term is used most often in reference to money market instru- ments and money market liabilities. In reference to securities lend- ing, this entails borrowing securities and then relending the same securities for an equivalent period for the purpose of borrowing and lending money at a locked-in rate. In contrast, an unmatched book refers to borrowing and lending of the same securities for dif- ferent maturities to take a short or long interest rate position. The process for comparing the trade or settlement details provided by counterparties to ensure that they are in accordance with re- spect to the terms of the transaction. First leg of a pair of transactions in the same securities, i.e. a secu- rities lending transaction – one for a near value date, the other for a value date further into the future. See closing (back) leg. Transactions with no fixed maturity date, with the possibility of ter- minating the transaction or refixing its terms or substituting col- lateral daily. The risk of loss because of human error or a breakdown of some component of the hardware, software or communications systems that are crucial to trading, risk monitoring or settlement. A method of trading that does not involve an exchange. In the over-the counter markets, participants trade directly, sometimes through brokers, with each other, typically by telephone or com- puter links. A settlement in which a number of transactions between or among counterparties are settled on a net basis. To borrow a security from one party and then lend the same secu- rity to another party.

Mark-to-market

Master agreement

Matched book

Matching (or comparison)

Net settlement

Onlend

Opening (or front) leg

Open transactions

Operational risk

Over-the-counter (OTC)

page 66 | Securities Lending & Repo markets