What Asset Holders in Securities Lending Need to Know Now About Indemnification and Counterparties

April 2016

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The securities lending market is changing at long last, and asset holders need to stay smart about managing risk and return in their programs. Some of these changes were long-expected, including the full pricing of capital charges for agent lenders and bank borrowers. Others are new, including lending directly to hedge funds.

Asset holders may want to take actions now to protect and even perhaps grow their securities lending revenues. This does not mean expanding risk unnecessarily, but does suggest that maintaining the status quo may not result in a successful outcome in one to two years’ time.

This Finadium report reviews important topics on indemnification and counterparties for asset holders in today’s securities lending market, and provides a checklist of action items for next steps. In particular, the report looks at the ideas of lending to hedge funds directly and lending on a CCP. While in many cases it is too early for asset holders to make decisions, now is a good time to get more comfortable with what these new routes to market mean for securities lending programs.

This report is part of the Finadium Executive Briefing series, providing briefings and analysis to the financial markets industry.

This report is 22 pages with 5 exhibits.

TABLE OF CONTENTS
■ Executive Summary

■ Why is Securities Lending Changing?

■ Factors Impacting the Cost of Indemnification
– Do Asset Holders Need Indemnification?

■ Counterparties and Lending Options
– Lending to Hedge Funds
– Lending on a CCP

■ Action Items for Asset Holders

■ About the Author

■ About Finadium