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SUNGARD Astec Analytics

THE SECURITIES BORROWING AND LENDING MARKET

Aaron Gerdeman Timothy Smith

October 22, 2009

SUNGARD

SunGard’s Astec Analytics

SUNGARD Background of SunGard’s Astec Analytics

� Securities lending specialist � Market information � Benchmarking � Research

� Founded 1980 � Acquired by SunGard October 2007 � 29-years experience � State-of-the-art technology � Integration with other SunGard solutions

� Clients � Beneficial owners and direct lenders � Custodians and 3rd-party agent lenders � Prime brokers � Hedge funds

SUNGARD

State of the Industry

0

1

2

3

4

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7

8

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct

Availability (Trillion

s)

Securities Available  for LendingTrillions of Shares / Par Value

SUNGARD Effects of the Last Year – Supply

2007 20092008

Source: SunGard Astec Analytics

0 bp

50 bp

100 bp

150 bp

200 bp

250 bp

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul

Fee (bp)

Global Equity Spreads

SUNGARD Effects of the Last Year – Demand

2007 20092008

Source: SunGard Astec Analytics

$‐

$100 

$200 

$300 

$400 

$500 

$600 

$700 

$800 

$900 

2007 2008 2009

Billion

s

U.S. Equity Loan Volume ($)

Non‐U.S. Equity Loan Volume ($)

    

SUNGARD Effects of the Last Year – Changes in Volume

Securities Loan Volume

U.S. Equities

Source: SunGard Astec Analytics

‐1.00

0.00

1.00

2.00

3.00

4.00

5.00

2007 2008 2009

Intrinsic Fee (%

)

GC

Specials

          

SUNGARD Effects of the last year – spread differentials

GC vs. Special by Intrinsic FeesGC vs. Special,

Source: SunGard Astec Analytics

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2008 2009

Special

GC

   

SUNGARD Effects of the Last Year – ‘Specials only lending?’

GC vs. Special

Source: SunGard Astec Analytics

Insurance Companies

27.5%

ERISA Funds22.0%

Public Pensions19.0%

S&LG Treasurers21.9%

Mutual Funds8.5%Closed-End Funds

and ETF's 1.1%

SUNGARD Focus on Investment Companies: S/L Market Share

� About one-tenth of loan volume TOTAL ON-LOAN VOLUME (2Q08)

$2.2 Tn

� Lending activity at funds has increased steadily since the late 1990s

SUNGARD Focus on Investment Companies: S/L Growth

                  

 

� Total returns vary across asset classes � Due to utilization rates and loan spreads

SUNGARD Focus on Investment Companies: Returns in S/L

Average Earnings Due To Securities Lending for Different Investment Styles July 2008. Source: SunGard Astec Analytics

Investment Style

Return on Loans (Basis Points)

Average Share of Portfolio on Loan

Annualized S/L Return on Portfolio Value (Basis Points)

Equity Small‐Cap 173.5

Equity Mid‐Cap 153.2

Equity International 119.3

Fixed Income Government 40.1

Equity Growth 92.3 Equity Value 82.0 Fixed Income Corporate 73.7

Fixed International 50.0

Equity Domestic 68.0

Fixed Income High Yield 89.3

Balanced 51.7

Equity Large‐Cap 79.4

11.6% 6.1%

5.7%

15.6%

5.9%

6.0%

5.7%

8.2%

5.5%

4.2%

5.9%

2.6% 20.0

9.4

6.8

6.3

5.4

4.9

4.2

4.1

3.7

3.7

3.0

2.0

SUNGARD

Overview of the U.S. Securities Lending Model

SUNGARD Overview of the U.S. Securities Lending Model

� Use of Lending Agents � Custodial / operational activity � Few ‘direct’ lending programs

� Collateral � Cash , almost exclusively, with regulatory promotion � Collateral ‘re-investment’ became driver of S/L revenue

� Industry competition � Rise of the third party lending agent � Competing on (cash) returns

� Service levels � Income splits � Indemnification

SUNGARD

U.S. Regulatory Interest and Impact

–

SUNGARD Reg SHO Timeline

Pilot Period 2 May 2005 – 30 Jun 2007

Reg SHO Adopted 7-Sep-2004

Threshold List Jan 2005

Rule 201 Eliminates Uptick Rule

Jul 2007

Rule 203: Grandfather Clause Removed

15 Oct 2007

SEC Bans Short Selling in Financial Stocks

18 Sep 2008 8 Oct 2008

Rule 204T 17 Sep 2008 – 31 Jul 2009

SEC Emergency Order 21 Jul 2008 – 12 Aug 2008

10b-21 17 Sep 2008

2005 2006 2007 2008 2009

SUNGARD US Regulatory Interest and Impact – The Uptick Rule

� The original uptick rule vis-à-vis securities lending

Analysis of changes in stock loan volume before/during/after Pilot Period for Russell 3000 Index stocks:

� Change from pre-Pilot to start of Pilot: � Pilot stocks (N=750) Æ +17%

� Non-Pilot stocks (N=2,600) Æ +14%

� Change from end days of Pilot to elimination of Uptick rule: � Pilot stocks (N=750) Æ +18% � Non-Pilot stocks (N=2,600) Æ +16%

0%

20%

40%

60%

80%

100%

120%

7 Jul 21 Jul 4 Aug 18 Aug

19 Financials

Rest of NYSE

                  

60%

50%

40%

30%

20%

10%

0%

10%

1 Aug 15 Aug 29 Aug 12 Sep 26 Sep 10 Oct 24 Oct 7 Nov

US Financial StocksUS Stocks ex Financials

            

SUNGARD

US Regulatory Interest and Impact – Short Selling Restrictions

� SEC short selling restrictions � Emergency Order of July 2008 � Short selling ban of September 2008

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SEC Emergency Order

Change in Shares On Loan for 19 Financial Stocks

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‐

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐

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SEC Ban on Shorting Financials

U.S. Equity Loan Volume

Source: SunGard Astec Analytics

SUNGARD US Regulatory Interest and Impact – Rule 204

SUNGARD

Transparency in Securities Lending

SUNGARD Transparency in Securities Lending

� How it all started � Unintentional opacity

� How it has changed � Cross-border expansion � Corporate actions and voting � Academic interest � Beneficial owner interest � Growth in robust available data � Performance benchmarking requirements and the RFP

process � Regulatory interest

� Where we are today � ‘Real’ acceptance of principle of ‘relevant’ transparency

SUNGARD Example of Transparency: Lending Pit

� Price discovery tool

� Securities lending trading desks

www.sungard.com

SUNGARD Astec Analytics

Thank You