Obinna Dike of Citi is one of many professionals who is actively interested in securities lending, which has quietly taken a status akin to hedge funds in the financial industry. Like any element of the financial system, securities lending poses both risks and benefits. Interested professionals such as Citi’s Obinna Dike know this. Through an in-depth understanding of securities lending, these professionals are able to safely navigate the business to bolster their portfolios, and those of their clients, when applicable.
What is Securities Lending?
Securities lending takes place when an investor lends his or her stocks, bonds or other financial interests (securities) to others in the financial market. The largest lenders are typically mutual funds, pension funds and ETFs, or exchange-traded funds. The largest borrowers are typically hedge funds.
Hedge funds and other borrowers use their on-loan securities to their advantage by making short sales. Short selling is the act of selling a security on the assumption that it can later be purchased back for less, resulting in profit.
Collateral
Borrowers are required to pay collateral that is an equal value to the loaned securities. Collateral is balanced with the market each day so that the lender can ensure the on-loan securities are adequately covered by the borrower. If the borrower provides cash collateral, it is typically invested so that it can earn interest; any interest on collateral is split in an agreed-upon manner by lenders and borrowers.
When financially-interested professionals, like Obinna Dike Citi, deal with elements in the financial system, they know that they are taking a risk. The key is to intelligently monitor the market so that risks taken are informed, with high chances of benefitting all parties.
