Understanding Securities Lending

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Understanding Securities Lending

• Richard B. Bentsen
• NAST Treasury Management Conference
• New Orleans, Louisiana
• December 3-6, 2006

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Solar system of exciting careers (as seen by a
2nd grade boy)

• Thats my daddy! I
  dont know this man.

Soldier/Spy
State Treasurer
College Savings
Securities Lender
Fireman/Policeman
Professional Athlete
Unclaimed Property
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Two most common questions

• How does securities lending work?
• Why the heck would anyone want to do it?

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Securities Loan Opening Transaction
Deliver securities to borrower
Lender
Borrower
Deliver 102 collateral to lender
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Securities Loan Transaction Activity While Open
Dividends and interest
Loan fee
Lender
Borrower
Daily Mark to Market Loan vs. Collateral to
maintain 102
Proxy vote
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Securities Loan Closing Transaction
Return securities to lender
Lender
Borrower
Return 102 collateral to borrower
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Why Borrow?

• Cover delivery/receipt fails
• Take a short position in a security
• Arbitrage two different securities
• Hedge a securities position

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Why Lend?

• Generate incremental portfolio returns

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Market Benefit of Securities Lending
Cash Markets (Buy/Sell)
Securities Lending
Derivatives Markets
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Modern Securities Lending Market Structure
Hedge Fund Borrower
Lending Agent
Institutional Investor Lender
Prime Broker
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Thank You!

• Richard B. Bentsen
• richardbentsen_at_comcast.net
• 847-533-6111