Securities lending & borrowing - operational challenges

Securities Lending & Borrowing has been an important activity within the securities marketplace for many years. Firms that choose to lend their equities and/or bonds do so in order to earn lending fees and to enhance their investment returns. Conversely, firms that choose to borrow securities typically do so primarily to meet delivery commitments and to receive sale proceeds in a timely fashion. However, undertaking securities lending & borrowing transactions is not without risk. The mitigation of exposures is an essential daily task, involving the regular revaluation of both the lent/borrowed security and the associated collateral. Companies are also required to make margin calls on the counterparty and settlement of such margin calls. Additionally, corporate actions may arise which can impact the lent security and/or securities collateral. It is therefore of paramount importance that those responsible for processing such transactions possess a clear understanding of the risks involved, their potential exposures and critically, what mitigating measures are necessary.