If you read “Obinna Dike of Citi: Part One of Understanding Securities Lending,” you’re likely eager to get into the meat of it. Now that you understand how those like Citi’s Obinna Dike begin the process, the steps used to profit from and end the exchange are integral to understanding the spirit of securities lending.
After the securities transfer, the following steps typically take place…
Investment of cash collateral typically follows the transfer of security transfer. Any interest collected on cash collateral will be split according to the terms agreement; non-cash collateral is not reinvested.
Daily mark-to-markets are used by the lending agent to adjust the collateral based on the current market value. This ensures that the lender is protected and that the buyer’s collateral adequately covers the loan.
Security return takes place when the lending period ends, after the borrower has used the loan to turn a profit through short selling.
Loan closure is completed when the collateral, including any agreed-upon interest, is returned to the buyer.
Payment of loan earnings is the final step of securities lending. All earnings from the investment, minus the borrower’s rebate from interest, are divided appropriately, determined by the agreed-upon fee split written during the term-negotiation step.
Obinna Dike of Citi is among the millions around the world who are involved in securities lending. If you would like to get started, contact an involved party in your area for more information.
If you missed “Obinna Dike of Citi: Part One of Understanding Securities Lending,” take a peek to understand the five steps that precede the investment of cash collateral.
