Agent Lender Disclosure (ALD)
A comprehensive set of guidelines for broker-dealers and agent lenders participating in securities lending on an agency basis.
Association of Luxembourg Fund Industry (ALFI)
The Association of Luxembourg Fund Industry represents the interests of the Luxembourg Fund industry, set up in 1988.
ALFI website: http://www.alfi.lu/
Coupon interest that is earned on a bond from the last coupon date to the present date.
Market price of a bond, plus accrued interest. Generally rounded to the nearest 0.01. Also know as the ‘dirty price’
Alternative Investment Management Association (AIMA)
The Alternative Investment Management Association represents the global alternative investment industry.
AIMA website: https://www.aima.org/
Acronym: Asia Pacific region
Association for Financial Markets in Europe (AFME)
The Association for Financial Markets in Europe work on behalf of its members to advocate for stable, competitive, sustainable capital markets.
AFME website: https://www.afme.eu/
Association of National Numbering Agencies (ANNA)
ANNA is committed to the use of standard identifiers to make the financial world a more efficient, safer and more stable environment for investors and the financial institutions that serve them.
ANNA Website: https://www.anna-web.org/
Alternate Investment Fund (AIF)
An alternative investment fund (AIF) is defined in the Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD). In the UK, this definition was implemented via the Alternative Investment Fund Managers Regulations (SI 2013/1773) (AIFMD UK Regulation) and the FCA Handbook. This note provides a discussion of the elements of the AIF definition, including exclusions and examples of schemes that are categorised as AIFs.
Global Legal Entity Identifier Foundation (GLEIF)
Established by the Financial Stability Board in June 2014, the Global Legal Entity Identifier Foundation (GLEIF) is tasked to support the implementation and use of the Legal Entity Identifier (LEI). The foundation is backed and overseen by the LEI Regulatory Oversight Committee, representing public authorities from around the globe that have come together to jointly drive forward transparency within the global financial markets.
Bank of England
The Bank of England is the UK’s central bank. Their aim is to promote financial stability in UK Markets.
BoE website: https://www.bankofengland.co.uk/
Bank Recovery and Resolution Directive (BRRD)
An EU directive designed to create a framework for authorities to manage bank failures effectively.
Basel Committee on Banking Supervision (BCBS)
The Basel Committee on Banking Supervision is the primary global standard setter for the prudential regulation of banks and provides a forum for regular cooperation on banking supervisory matters.
BCBS website: https://www.bis.org/
Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk.
One one-hundredth of a percent, or 0.01%
Securities that are not registered to any particular party and hence are payable to the party that is in possession of them.
A party that is entitled to the right of ownership of property. In the context of securities, the term is usually used to distinguish this party from the registered holder (a nominee, for example) that holds the securities for the beneficial owner.
Difference between interest return on securities held and financing costs:
Negative carry: Net cost incurred when financing cost exceeds yield on securities that are being financed.
Positive carry: Net gain earned when financing cost is less than yield on financed securities.
A non-financing purchase or sale of securities
Central Counterparty (CCP)
A central counterparty clearing house (CCP) is an organisation that exists in various European countries to help facilitate trading done in European derivatives and equities markets.
Central Securities Depositories Regulation (CSDR)
The Central Securities Depositories Regulation (CSDR) is one of the key regulations adopted in the aftermath of the financial crisis with a view to improving the functioning and stability of the financial markets.
To complete a trade, i.e. when the seller delivers securities and the buyer delivers funds on correct form. A trade fails when proper delivery requirements are not satisfied.
Close-Out (and) Netting
An arrangement to settle all existing obligations to and claims on a counterpart falling under that arrangement by one single net payment, immediately upon the occurrence of a defined event of default.
Securities or cash delivered by a borrower to a lender to support a loan of securities or cash.
Collateral management is the method of granting, verifying, and giving advice on collateral transactions in order to reduce credit risk in unsecured financial transactions.
Contract for Difference (CFD)
An OTC derivative transaction that enables one party to gain economic exposure to the price movement of a security (bull or bear).
Writers of CFD’s hedge by taking position in the underlying securities, making efficient securities financing or borrowing key.
An entity that holds securities of any type for investors, effecting receipt and deliveries, and supplying appropriate reporting.
“Standard” two-party repo, where the party receiving cash delivers bonds to the cash provider.
Delivery versus Payment (DVP)
The simultaneous delivery of securities against the payment of funds within a securities settlement systems.
Entitlements arising on the securities that are loaned out, e.g. dividends, interest, and non-cash distributions.
Der deutsche Fondsverband (BVI) (The German Investment Funds Association)
BVI represents the interests of the German fund industry at national and international level. The association promotes sensible regulation of the fund business as well as fair competition vis-à-vis policy makers and regulators.
Acronym: Europe, the Middle East, and Africa region.
Equivalent (securities or collateral)
A term meaning that the securities or collateral returned must be of an identical type, nominal value, description and amount to those originally provided.
If, during the term of the loan, there is a corporate action in relation to loaned securities, the lender is normally entitled to specify at the time the form in which he wishes to receive equivalent securities or collateral on termination of the loan.
The legal agreement will also specify the form in which equivalent securities or collateral are to be returned in the case of other corporate events.
Acronym: The Employee Retirement Income Security Act, a US law governing private US pension plan activity, introduced in 1974 and amended in 1981 to permit plans to lend securities in accordance with specific guidelines.
The use of a third party, which holds an asset or funds before they are transferred from one party to another.
European Banking Authority (EBA)
The European Banking Authority (EBA) is an independent EU Authority which works to ensure effective and consistent prudential regulation and supervision across the European banking sector.
European Commission (EC)
The European Commission is the executive of the European Union and promotes its general interest.
European Market Infrastructure Regulation (EMIR)
The European Market Infrastructure Regulation (EMIR) is a body of European legislation for the regulation of over-the-counter derivatives.
European Repo and Collateral Council (ERCC)
ICMA’s European repo and collateral council (ERCC) which operates under the board’s ultimate oversight is the industry representative body responsible for promoting best market practice for the European repo market and providing education and information for the benefit of market participants.
European Securities and Markets Authority (ESMA)
ESMA is an independent EU Authority that contributes to safeguarding the stability of the European Union’s financial system by enhancing the protection of investors and promoting stable and orderly financial markets.
ESMA Website: https://www.esma.europa.eu/
European Union (EU)
The European Union consists of 28 member states. Each member state is party to the founding treaties of the union and thereby subject to the privileges and obligations of membership.
The European Fund and Asset Management Association (EFAMA)
EFAMA is the representative association for the European investment management industry.
EFAMA Website: https://www.efama.org/SitePages/Home.aspx
Financial Stability Board (FSB)
The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system.
Financial Transaction Tax (FTT)
Proposed by the European Commission to impose a financial transaction tax (FTT) within some of the member states of the European Union.
The tax would be levied on all transactions on financial instruments between financial institutions when at least one party to the transaction is located in the EU.
FSB Workstream 5
FSB Work Stream 5 is the Financial Stability Board’s work streams concerned with Securities Finance.
The failure to deliver cash or collateral in time for the settlement of a transaction.
Delivery of securities with no corresponding payment of funds.
Financial Conduct Authority (FCA)
The British financial market regulator.
FCA Website: https://www.fca.org.uk/
Global Master Securities Lending Agreement (GMSLA)
The Global Master Securities Lending Agreement (GMSLA) is an industry standard master agreement that is promoted and maintained by the International Securities Lending Association. It is used predominantly for the conclusion of cross-border securities lending transactions.
The group of ten (with 11 members), i.e. Belgium, US, France, Japan, United Kingdom, Germany, Italy, Canada, the Netherlands, Sweden, and Switzerland.
The group of seven, i.e. US, France, Japan, United Kingdom, Germany, Italy, and Canada.
Gilt-edged Securities (Gilts)
United Kingdom government bonds.
Securities on which interest or other distributions are paid without any taxes being withheld.
Acronym: General Collateral
A set of security issues which trade in the repo market at the same or a very similar repo rate.
A leveraged investment fund that engages in trading and hedging strategies, frequently using leverage.
Hold in custody
An arrangement under which securities are not physically delivered to the borrower (lender) ,but are simply segregated by the lender in an internal customer account.
A particular security that is in high demand in relation to its availability in the market and is thus relatively expensive or difficult to borrow.
Icing/putting stock on hold
The practice whereby a lender holds securities at a borrower’s request in anticipation of that borrower taking delivery.
A form of guarantee or insurance, frequently offered by agents. Terms vary significantly and the value of the indemnity does also.
An inter-dealer broker (IDB) is a specialist financial intermediary that facilitates transactions between broker-dealers, dealer banks and other financial institutions rather than private individuals
International Securities Market Association (ISMA)
The Zurich-based International Securities Market Association is the self-regulatory organisation and trade association for the international securities market.
ISMA sets standards of business conduct in the global securities markets, advises regulators on market practices and provides educational opportunities for market participants.
Investment Authority (IA)
The Investment Association is the trade body that represents UK investment managers.
IA Website: https://www.theinvestmentassociation.org/
International Capital Market Association (ICMA)
ICMA is a membership association, headquartered in Switzerland, committed to serving the needs of its wide range of members. These include private and public sector issuers, financial intermediaries, asset managers and other investors, capital market infrastructure providers, central banks, law firms and others worldwide. ICMA currently has more than 550 members located in over 60 countries.
ICMA Website: https://www.icmagroup.org/
International Swaps and Derivatives Association (ISDA)
ISDA fosters safe and efficient derivatives markets to facilitate effective risk management for all users of derivative products.
ISDA Website: https://www.isda.org/
Market in Financial Instruments Directive (MiFiD)
The markets in financial instruments directive (MiFID) is a regulation that increases the transparency across the European Union’s financial markets and standardises the regulatory disclosures required for particular markets. This was updated in 2017 with MiFID II.
Markets and Financial Instruments Regulation (MiFiR)
Markets in Financial Instruments Regulation or MiFIR, is a European law which demands its member states to comply with its regulations.
As a result of the last financial crisis, the need for a European Union wide regulation called for the emergence of MiFIR.
This regulation was formed with the intent to not only protect the markets, but also the investors.
When securities that have been lent out pay a cash dividend, the borrower of the securities is in general contractually required to pass the distribution back to the lender of the securities.
This payment “pass-through” is known as a manufactured dividend.
A request by one party in a transaction for the initial margin to be reinstated or to restore the original cash/securities ratio to parity.
The value of loan securities or collateral as determined using the last (or latest available) sale price on the principal exchange where the instrument was traded or, of not so traded, using the most recent bid offered prices.
To mark-to-market is to calculate the value of a financial instrument (or portfolio of such instruments) at current market rates or prices of the underlying. Marking-to-market on a daily (or more frequent) basis is often recommended in risk management guidelines.
Refers to the interest rate arbitrage book that a repo trader may run. By matching or mismatching maturities, rates, currencies, or margins, the repo trader takes market risk in search of returns.
For many years ISLA has obtained and annually updated legal opinions in a joint exercise with ICMA for approximately 60 jurisdictions globally.
More information on Netting Opinions: click here.
Net paying securities
Securities on which interest or other distributions are paid net of withholding taxes.
National Competent Authority (NCA)
The NCA is the collective group of Competent authorities such as the United Kingdom’s FCA that represent the 28 EU member states.
With overcollateralisation, excess collateral is used to enhance credit in order to get a better debt rating from a credit rating agency. An issuer backs a loan with assets or collateral which has value in excess of the loan, thereby, limiting credit risk for the creditor and enhancing the credit rating assigned to the loan.
Trades with no fixed maturity date.
Market practice or a specific agreement between counterparts that allows a part-delivery against an obligation to deliver securities.
The practice of paying a fee to the lender to hold securities for a particular borrower until the borrower is able to take delivery.
A service offered to clients- typically hedge funds – by investment banks to support their trading, investment, and hedging activities.
The service consists of clearing, custody, securities lending, and financing arrangements.
A party to a loan transaction that acts on its own behalf or substitutes its own risk for that of its client when trading.
Trading activity conducted by an investment bank for its own account rather than for its clients.
Pan Asian Securities Lending Association (PASLA)
PASLA was incorporated in Hong Kong in 1995, and is an association of firms that are active in the business of borrowing and/or lending securities of Asian markets.
PASLA Website: https://www.paslaonline.com/
Repurchase Agreement (REPO)
Transaction whereby one party sells securities to another party and agree to repurchase the securities at a future date at a fixed price.
Risk Weighted Assets
Risk weighted assets are used to determine the minimum amount of regulatory capital that must be held by banks to maintain their solvency. This minimum is based on a risk assessment for each type of bank risk exposure; credit, market, operational, counterparty and credit valuation adjustment risks.
The interest paid on the cash side of securities lending transactions. A rebate rate of interest implies a fee for the loan of securities and is therefore regarded as a discounted rate of interest.
A request by a lender for the return of securities from a borrower.
The interest rate paid on the cash side of a repo/reverse transactions.
Repo (or reverse) to maturity
A repo or reverse repo that matures on the maturity date of the security being traded.
Occurs when the market value of a security in a repo or securities lending transaction changes and the parties to the transaction agree to adjust the amount of securities or cash in a transaction to the correct margin level.
Occurs when the borrower of securities returns them to the lender.
Transaction whereby one party purchases securities from another party and agrees to resell the securities at a future date at a fixed price.
To renew a trade at its maturity.
Risk Management Association (RMA)
The Risk Management Association (RMA) is a not-for-profit, member-driven professional association serving the financial services industry. Its sole purpose is to advance the use of sound risk management principles in the financial services industry.
RMA Website: https://www.rmahq.org/
Securities Lending Market Report
ISLA’s Securities Lending Market Report is a bi-annual publication that looks at the performance of the industry in the previous 6 months as well considering the future of the market.
Securities Finance Transaction (SFT)
Securities financing transactions (SFTs) allow investors and firms to use assets, such as the shares or bonds they own, to secure funding for their activities. A securities financing transaction can be:-
– A repurchase transaction – selling a security and agreeing to repurchase it in the future for the original sum of money plus a return for the use of that money.
– Lending a security for a fee in return for a guarantee in the form of financial instruments or cash given by the borrower.
– A buy-sell back transaction or sell-buy back transaction.
– A margin lending transaction.
Short selling is the sale of a security that is not owned by the seller or that the seller has borrowed. Short selling is motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.
Securities Industry and Financial Markets Association (SIFMA)
SIFMA is the voice of the U.S. securities industry. Promoting effective and resilient capital markets.
SIFMA Website: https://www.sifma.org/
The name for ISLA’s SFTR Steering Committee, which is comprises of a core group of representatives from 15 ISLA member firms and also has input from a further 50+ member firms.
Title Transfer Collateral Arrangements (TTCA)
This term is used to describe an agreement under which collateral is provided by one party (the “Collateral Provider”) to the other (the “Collateral Receiver”) on a “title transfer basis”.
This means that the Collateral Receiver receives full title (e.g. legal ownership) to that collateral from the Collateral Provider.
Trades with a fixed maturity date.
Undertaking for Collective Investments in Transferable Securities (UCITS)
UCITS came about from a 1985 EU directive that aimed to standardise the rules and regulations across Europe regarding open-ended funds and transferable securities.
The plan was to make funds approved in one country easy to market and sell to investors throughout the EU.
The first two versions of UCITS were not adopted, but UCITS III was approved in 2001, and remains in force today.
Legal Entity Identifier (LEI)
The Legal Entity Identifier (LEI) is unique global identifier of legal entities participating in financial transactions. These can be individuals, companies or government entities that participate in financial transaction.