SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

GLOSSARY

Failure to complete a funds or securities transfer according to its terms for reasons that are not technical or temporary, usually as a result of bankruptcy. Default is usually distinguished from a “fail”. A link between two securities transfer (settlement) systems that ensures that a delivery occurs if, and only if, another delivery oc- curs and vice versa. A mechanism in some settlement systems to assist a participant to borrow money from or lend money to another participant against collateral held in the system. The system will select and deliver securities (based on the preset specifications of the giver and the taker) to the appropriate party and arrange that equivalent securi- ties be returned the following business day. A link between a securities transfer system and a funds transfer system that ensures that delivery occurs if, and only if, payment occurs. The elimination of physical certificates or documents of title which represent ownership of securities so that securities exist only as accounting records.

Default

Delivery versus delivery (DVD)

Delivery by value (DBV)

Delivery versus payment (DVP)

Dematerialisation

A financial contract the value of which depends on the value of one or more underlying reference assets, rates or indices.

Derivative

A termmeaning that the securities or collateral returned must be of an identical type, nominal value, description and amount to those originally provided.

Equivalent (securities or collateral)

Standard agreement used at the European level for securities lend- ing and repos.

European Master Agreement (EMA)

An event stipulated in an agreement as constituting a default. Gen- erally, the occurrence of a failure to pay or deliver on the due date, breach of agreement and insolvency are events of default. A failure to settle a cash or securities transaction on the contrac- tual settlement date, usually because of technical or temporary dif- ficulties. Fail is usually distinguished from “default.” A repurchase agreement in which the repo rate is linked to an in- dex such as EONIA and is accordingly periodically re-fixed. The rate may incorporate a spread under or over the index (e.g. EONIA minus 3 basis points).

Event of default

Fail (or failed transaction/delivery)

Floating-rate repo

Delivery of securities with no corresponding payment of funds.

Free-of-payment delivery

Securities that are not special in the market, i.e. which are not in particular demand.

General Collateral (GC)

Securities Lending & Repo markets | page 63