SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

FOREWORD

Continuing our series of academic guides * , we are pleased to present you our latest publica- tion dedicated to the securities lending and repo markets.

Today securities lending and repo markets are a vital component of domestic and interna- tional financial markets, providing liquidity and greater flexibility to securities, cash and deriva- tives markets. They notably improve the functioning of securities markets by allowing sellers immediate access to securities needed to settle transactions where those securities are not available, by offering an efficient means of financing securities portfolios and by support- ing participants’ investment and trading strategies. As such, they play a core role for asset managers, pension funds, insurance companies, investment banks, central banks, sovereign funds, broker-dealers and hedge funds. The past 3 years have been challenging for the securities lending and repo markets on a global scale, as the industry experienced unprecedented events in financial markets world- wide: A credit crunch, impaired liquidity in cash collateral vehicles, the bankruptcy of a major global investment bank, increasing scrutiny from regulators and politicians, the introduction of temporary short-selling bans, and more recently sovereign risk concerns. These events ob- viously created uncertainty and many beneficial owners allocated a significant amount of time reflecting on the lessons learn t from the crisis, reviewing their securities lending programs and looking for greater transparency and control of risks. Meanwhile, the financial turmoil further enhanced the importance of the repo market and secured funding. As the worst of the economic downturn appears now to have abated, we can assert that the securities lending and repo business has proved resilient. We are confident in the future of the industry, which is likely to remain an important element of modern financial markets. Besides, the latest industry statistics available confirm a rebound of the market from a low point in 2008. Since clients are eager to capture the opportunities the securities lending and repo markets can bring to the table, but they need guidance so that they can do so in an environment that they are comfortable with, this publication aims to act as a reference handbook. CACEIS is an experienced player, providing asset managers, other institutional investors, broker-dealers, central banks and sovereign funds with full securities lending/borrowing and repo services from dealing to operational processing on main international markets. It is this experience, expertise and know-how gained through supporting various clients over the years that we share once again in this brochure. You will find hereafter a comprehensive overview of the securities financing market (main instruments and standard agreements used, history, securities lending and repo market size and features), a description of the various market participants and their motivations, as well as of the main arrangements set up. The guide also discusses a number of significant challenges for the market players: Regulation and taxation, operational efficiency and trans- parency, collateral management, risk versus return. Finally it reminds the importance of ap- pointing a proven specialist to conduct this business.

We trust this publication will reply to the numerous questions you may have and that you will find it both relevant and informative.

* Cross-border distribution of UCITS, A thorough understanding of private equity