SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

GLOSSARY

A delivery of property to secure the performance of an obligation owed by one party (debtor/pledgor) to another (secured party). A pledge creates a security interest (lien) in the property so deliv- ered. See security interest. The provision by firms (e.g. large securities houses) of credit, clear- ing, securities lending, financing arrangements and other services to clients (typically hedge funds). A party to a transaction that acts on its own behalf. In acting as a principal, a firm is buying/selling (or lending/borrowing) from its own account for position and risk, expecting to make a profit. A lender institution offering customers’ securities on an undisclosed basis may also be considered to be acting as principal. The risk that the seller of a security delivers a security but does not receive payment or that the buyer of a security makes payment but does not receive delivery. In this event, the full principal value of the securities or funds transferred is at risk.

Pledge

Prime brokerage

Principal

Principal risk

A generic term that refers to the exclusive right or interest of pos- sessing, enjoying and disposing of a specific property.

Property interest

Trading in securities or derivatives for the account of a firm itself, rather than on behalf of clients.

Proprietary (trading)

In a repo transaction, the value date, i.e. when the purchase price and collateral are exchanged by the buyer and the seller.

Purchase date

In a repo transaction, the amount of cash paid by the buyer to the seller on the purchase date in exchange for collateral. The pur- chase price is net of any initial margin or haircut.

Purchase price

The continuous (real-time) settlement of funds or securities trans- fers individually on an order-by-order basis (without netting).

Real-time gross settlement (RTGS)

The interest rate that a securities lender pays the borrower on cash collateral. A rebate rate of interest implies a fee for the loan of se- curities and is therefore regarded as a discounted rate of interest.

Rebate rate

A demand by a securities lender for the return of securities from the borrower where they are lent on an open transaction.

Recall

The listing of ownership of securities in the records of the issuer or its transfer agent/registrar.

Registration

The risk that a counterparty to an outstanding transaction for com- pletion at a future date will fail to perform on the settlement date. The resulting exposure is the cost of replacing, at current market prices, the original transaction. See credit risk.

Replacement cost risk

Securities Lending & Repo markets | page 67