SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

GLOSSARY

A tax in the form of the cost of stamps which are required to be af- fixed to legal documents such as certificates, receipts and the like.

Stamp duty

Recalling the securities lent from a borrower and replacing them with other securities of equivalent market value during the life of the lending. The risk that the inability of one institution to meet its obligations when due will cause other institutions to be unable to meet their obligations when due. Arrangement whereby an institution lends directly to a borrower and retains decision making power, while all administration (set- tlement, collateral management, monitoring, etc.) is handled by a third-party, such as a global custodian. Conveyance of the ownership interest in property from a counter- party to another. Title transfer is used as one method of collaterali- sation. The title transfer method employs an outright transfer of the ownership interest in property serving as collateral. An OTC swap with a fixed maturity, in which a dealer agrees to receive the total return on the shares of stock sold to the cash in- vestor, counterparty of the swap, and in exchange to pay a floating rate of interest for the maturity to the counterparty. Payment to the cash investor at the termination of the swap is therefore the float- ing rate of interest plus any fall in the share price or minus any rise in the share price; on the other hand the cash investor sells the shares to get back his investment in the market. The end result of this arrangement is that the dealer borrowed cash at the floating rate for a set period of time, using his equity position as collateral. The total return swap is combined with an outright sale of stock in this way where the dealer is looking to finance an equity position and functions economically similarly to securities lending. The provision of collateral management services, including mark- ing to market repricing and delivery, by a third-party, such a custo- dian bank or an ICSD. Repo in which bonds and cash are delivered by the trading coun- terparty to an independent custodian bank or ICSD (the tri-party agent) that is responsible for ensuring the maintenance of ad- equate collateral value during the life of the transaction. A tax on income deducted at source, which a paying agent is le- gally obliged to deduct from its payments of interest on deposits, securities or similar financial instruments. Transactions with a fixed end or maturity date.

Substitution

Systemic risk

Term transactions

Third-party lending

Title transfer

Total return swap

Tri-party

Tri-party repo

Withholding tax

Source: International Organisation of Securities Commissions (IOSCO) & the Securities Lending and Repo Committee (SLRC)

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