Securities lending plays a significant role in today’s global capital markets. The practice improves overall market efficiency and liquidity, provides a critical element for hedging, acts as a useful tool for risk management for both trading and investment strategies, and helps to facilitate timely settlement of securities. With the balance of securities on loan exceeding $1.9 trillion globally1at the end of August 2014, securities lending has evolved from what 20 years ago was a back office, operational function to an investment management and trading function worthy of greater focus and attention.
This paper will provide both education and guidance but is not intended to be a lengthy or highly technical publication. Rather it is a basic explanation, with practical guidance notes incorporated, of the market mechanics, program structures, associated risks and risk mitigation, and the lending program approval process, including how programs are overseen by those responsible for securities lending at institutional investors. Where appropriate, we have noted additional information that is available in certain areas that the reader may wish to reference. As the industry continues to evolve, eSecLending will review and update the paper accordingly. The document is available on the eSecLending website, www.eseclending.com.