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{{a|gmsla|}}{{ | {{a|gmsla|Defined in the [[Capital Adequacy Directive]] as{{subtable|'''securities or commodities lending''' and '''securities or commodities borrowing''' mean any transaction in which an institution or its counterparty transfers securities or commodities against appropriate collateral, subject to a commitment that the borrower will return equivalent securities or commodities at some future date or when requested to do so by the transferor, that transaction being securities or commodities lending for the institution transferring the securities or commodities and being securities or commodities borrowing for the institution to which they are transferred;}}}}{{d|Securities lending|/sɪˈkjʊərɪtiz ˈlɛndɪŋ/|n|}} | ||
''Also a “[[stock loan]]”, “[[stock borrow loan]]” or “[[SBL]]”.'' | |||
The [[Collateral - GMSLA Provision|collateralised]] [[Title transfer|transfer]] — called a “loan”, since economically it resembles one, even if legally it does not — of [[equity securities]] under a {{gmsla}} or a {{msla}} with the expectation that the borrower will return [[equivalent]] securities at a point in the future (often undefined but on demand), for a fee. Stock loans are often mentioned in the same breath as {{tag|repo}}s as “[[securities financing]] arrangements”. | |||
{{ | {{securities lending capsule}} | ||
===Applications for securities loans=== | |||
There are (at least) four uses for a securities loan: | |||
* '''[[Short]]ing''': [[securities lending]] done as a means to effecting an outright short position in a stock. Here you borrow the stock, immediately sell it, hope like made the price goes down, buy it back, and return it to the lender for profit. This is usually done by end users like [[Hedge fund|hedge funds]], and is done by means of: | |||
** A '''[[Margin loan]]''' under a [[prime brokerage]] arrangement of some kind — here the broker is also financing the [[hedge fund]] on its position. | |||
** A '''collateralised GMSLA''': here the [[broker]] is typically ''not'' financing the investor on its position, as the investor is fully (and usually over-) collateralising the loan. | |||
* '''Inventory management''': Brokers in the market managing their brokerage flow to make sure they have the securities they need to settle short-term brokerage business, satisfy demand for short sellers etc. This is usually done by inter-dealer GMSLAs | |||
* '''Yield enhancement''': Here the lender is sitting long a fully paid for stock with no plans to sell it, and wants to earn some extra yield on the security by lending it into the market to someone (for example a [[Short sell|short seller]]) who is prepared to pay a fee to borrow it, and will eventually return it. The usual candidates for this kind of lending are [[wealth management]] customers and [[asset management]] vehicles ([[UCITS]], [[ETF]]s and so on) both of whom tend to be "structurally long" securities that they just sit on for extended periods, and might as well "put to work". These arrangements usually happen through "[[agent lending]]" programmes where a global [[custodian]] (who happens to be safekeeping assets for these structurally long investors) enter into securities lending arrangements in the market on their behalf (as agents - hence "agent lending"). The usual documents here are: | |||
** A normal title-transfer {{gmsla}} with an "{{gmslaprov|agency annex}}" or, increasingly commonly, | |||
** The new {{pgmsla}} | |||
** Together with, in either case, a [[tri-party collateral arrangement]] managed by a [[triparty agent]]. | |||
* '''Inventory financing''': [[Prime broker]]s and [[margin lender]]s offsetting the cost of financing their lending activities by taking the assets their clients have bought on margin, and using them as [[collateral]] when borrowing higher-credit quality assets they can return to their treasury departments to pay down their borrowings. These are typically the counterparties to agent lending arrangements described above in yield enhancement trades. This they do by: | |||
** '''[[Rehypothecation]]/[[reuse]]''': reusing customer assets held as collateral in physical [[prime brokerage]]. | |||
** '''Swap hedge inventory''': sending out the [[swap dealers]]’s hedge inventory, for [[synthetic prime brokerage]]. In practice these two uses are almost the same, and the [[broker/dealer]] will have an automated pipeline of assets into the [[Tri-party collateral arrangement|tri-party collateral management system]] so it can manage this process on an industrial scale. | |||
* '''[[Reuse]]''': In a way, the act of [[rehypothecation]] or [[reuse]] is a sort of pre-collateralised securities loan, too, though it is better to think of it as a prelude to an inventory financing arrangement. Reuse is really just to convert a pledge arrangement into a title transfer one. | |||
{{sa}} | |||
*[[Repo]] | |||
*[[Prime brokerage]] | |||
*[[Synthetic prime brokerage]] | |||