The Banking and Corporate Finance Training Specialist
Repo’s and Securities Lending
This course is presented in London on:
14 September
Course Overview
This Repo and Securities Lending course provides full coverage of the important aspects of
repo trading and the pertinent issues involved in Securities Lending. It is relevant for in-house lawyers and private practice lawyers alike as well as bankers and repo traders
involved in anything from the day to day business as usual plain vanilla repos to the more complex heavily negotiated repo trades involving structured securities or unusual assets. This course will also be relevant to the Operations and Documentation teams involved in
repo transactions from time to time, structurers, compliance personnel as well as accountants who advise clients on repo trades.
The first part of this course sets the scene by giving an introduction to repos; the development of the repo market in Europe, the legal and economic characteristics of repos,
the definitions and terminology 'jargon' that is commonly used in the repo market and the uses and benefits of repos. We then go through the various types of repo products in the
market and discuss the risks, mitigants and distinguishing characteristics of repos. The second part of the course covers the architecture of the GMRA documentation
framework. Here we will go through the key provisions of the GMRA and discuss topical issues relating to and affecting the repo market. We will go on to discuss the 3 levels of
activity in the repo market and go through an analysis of repos in the US market. This will be followed by a detailed step by step analysis of how a repo trade is negotiated and executed. We then cover the pertinent issues in the regulation of the repo market in
Europe.
The third part of the course will cover an overview of Securities Lending; what it is, the reasons for it, the parties involved in it and the advantages and disadvantages for using it. We will discuss the legal structure and the various risks involved in Securities Lending. We
will then go on to analyse the GMSLA documentation and the key provisions. We will undertake an analysis of the relevant case law in this area following which we will discuss
the regulations effecting Securities Lending and the upcoming regulatory changes and considerations to be aware of.
Please note that the sections on regulations are subject to change depending on the time of the year this training course is delivered as per the regulations and guidance that are
published from time to time.
Complimentary materials including content filled presentation slides, the GMRA and relevant articles will be provided to all participants.
Course Overview
Course Content
INTRODUCTION: REPOS OVERVIEW
The Development of the Repo Market
The Legal and Economic Characteristics of Repos Definition of a Repo
“True Sale” title transfer Enforcement Substitution
Similarities to secured loans Cashflows
Definitions and Terminology Used: Haircuts Manufactured Payments
Equivalent Securities Purchased Securities
Purchase and Repurchase Prices Income Payments Repo Rates
Voting Rights Fungibility issues
Uses of Repos: 4 basic functions:
Safe Investment
Long positions Short positions
Yield enhancement Secured lending with haircut provisions
Monetary policy instruments – Central Banks Benefits of Repos:
For lenders
For borrowers To the financial markets
Types of Securities used in Repos: Government bonds High grade bonds
Credit Repos: Private sector assets Corporate bonds
ABS – Asset Backed Securities MBS – Morgage Backed Securities Covered Bonds
CPs – Commercial Paper Bank Loans
Mortgage Loans (in the US) Gold
Participants in the Repo Market
Buyer's side Seller's side
Types of Repos and similar transactions Classic Repos Agency Repos
GC Repos Term Repos
On-demand Repos or Open Repos Forward Repos
Reverse Repos
Tri-party Repos
Synthetic Repos Cross-currency Repos
Credit Repos Floating-rate Repos Bonds trading 'on special'
Securities Lending Buy/Sell- Backs
Distinguishing Characteristics of Repos Risks in a Repo
Counterparty credit risks
Collateral risks Transferability
Collateral Management Legal Certainty
Mitigation of Counterparty Credit Risks
Margin Ratio Margin Collateral
Set off
REPO DOCUMENTATION Introduction
The GMRA Reasons for the GMRA
Recharacterisation risks Margining Event of Default Procedures
Netting Rights Other Risk Mitigation measures
Basel III Capital Requirements Operational Benefits Harmonisation
Use in Structured Transactions Legal Opinions
Architecture of the GMRA documentation Versions:
The 1992 original version
The 1995 version The 2000 version
The 2011 version Annexes
Supplemental Terms or Conditions
Equity Annex Bills of Exchange Annex
Agency Annex Buy/Sell-Back Annex
Confirmation
Market Protocols and Guidelines 2011 GMRA Protocol
ICMA ERC Guide July 2015 Securities Borrowing and Lending Code of Guidance ESMA Guidelines on repo and reverse repo agreements for UCIT Funds
Course Content
The GMRA Key Provisions and Considerations:
Collateral Selection Credit Risk
Valuations Liquidity Risk Adjustments
Margining Events of Default
Consequences of Failure to Deliver: at start of a repo at end of a repo
Standard Events of Default Default Notices
Close-out: 3 stages Valuation Procedures Consequential Losses
Negative Repo Rates Circumstances when this occurs
Definition and illustration of a Negative Repo Rate situation Problems caused by Negative Repo Rates Repo Rate Indices
STOXX GC Pooling Indices The GCF Repo Index
Gov PX The RepoFunds Rate The Repo Overnight Index Average (RONIA)
Accounting Treatment of Repos Balance sheet treatment not aligned with legal form
Lehman Brothers' Repo 105 MF Global's repo to maturity under US GAAP IFRS
Regulatory Reforms under consideration Short-selling
What is it? Essential functions
Risks and costs of short-selling Uncovered short-selling and market abuse EU Short Selling Regulations
Shadow Banking What is shadow banking?
Reasons why repos are viewed as riskier by regulators Risk mitigants
The Central Clearing Counterparties (CCPs)
The functions of the CCPs Benefits of using CCPs
Drawbacks of using CCPs The Principal CCPs in Europe Repo trading systems
Pro-cyclicality What is it?
Gorton-Metrick Hypothesis Run on the repo market and the 2007-8 financial crisis
Securitised banking
Course Content
CSD Regulation (CSDR)
Application Exemptions
Benefits Impact on Eurozone Repo Market
Levels of Activity in the European Repo Market Trading – How repos are trades are negotiated and executed
Direct trading Automated Trades ATSs
The ATSs operating in Europe Clearing – Netting by repo parties
Uncleared trades Bilateral cleared trades Multilaterally cleared trades
The Principal CCPs in Europe Collateral Management – Delivery and Maintenance
Bilateral Tri-party The Principal Tri-party Agents in Europe
Repos in the US
The Repo Market in the US Main Participants Assets used in US Repos
The Legal and Economic Characteristics Main distinctions of US Repos
Term limitation Bankruptcy code section 559 safe habor Back-up Security Interest
US Repo Documentation: The SIFMA MRA
Key Provisions Margin maintenance
Income Payments Segregation Representations
Events of default Tax Event
Confirmation Additional Provisions to add to SIFMA MRA
Step by Step Process of How a Repo Trade is Done Establish identity of counterparty – Legal Entity Identifier (LEI)
Establish whether parties dealing as principal or agent Key economic terms and post-trade checks How to quote repo rate
How to work out Purchase Price – dirty price inclusive of haircut Fixing Purchase and Repurchase Dates
For non-forward repos – CSDR T+2 Requirement For forward repos – 2 Methods:
Method 1 – Constant Date Method
Method 2 – Sequential Date Method
Course Content
For floating-rate repos For open repos
Allocating collateral and agreeing pricing
Negotiating rights of substitution Interest rates and charges on late payments
Post-trade verification process Confirmation – The essential terms
Affirmation – if necessary Partial Delivery – Exercising Mini-Close Outs Dealing with Negative Repo Rate issues
Reinvestment rate on Manufactured Payments Interest on Cash Margin
Calculating Floating-rate Repo interest Method 1 – Illustration Method 2 - Illustration
Calculating Open Repo interest Margining:
Fixing Haircut or Initial Margin Calculating Margin Calls Calculating Net Exposure
The Price used to Value Collateral Margin Thresholds
Deadlines for Margin Calls and Delivery Applying haircuts to Margin Securities Interest Payments on Cash Margin
“Repricing” and Net Exposures Margining Forward Repos
Consequences of non-delivery of Margin Margin Parameters Manufactured Payments
Resetting Coupon on Floating Rate Collateral Exercise of Substitution Rights
Termination Notices Amendments Post-Trade
REGULATION OF THE REPO MARKET IN EUROPE EU Financial Collateral Directive
Short Selling Regulations Capital Requirements Directive implementing the Basel III Regime EMIR
MiFID and MiFIR Bank Resolution and Recovery Directive
CSD Regulation Securities Law Directive
Crisis Management Directive Financial Stability Board's considerations on the 'shadow banking' issues
SECURITIES LENDING OVERVIEW What is Securities Lending?
Reasons for Securities Lending The Parties Involved
Case law: AP-Fonden v Bank of New York Mellon SA/NV & Ors
Benefits of Securities Lending
Disadvantages of Securities Lending
Course Content
Legal Structure Title Transfers Voting Rights
Lender's risk exposure Risks
Legal Risks Capacity
Netting/Set-off Opinions Recharacterisation Governing Law
Insolvency Laws Regulatory Risks
Change of law Mitigants in GMSLA Short selling
Credit Risks Counterparty
Collateralisation CCPs
Market Risks
Price fluctuations Pricing considerations
DOCUMENTATION The ISLA
The Global Master Securities Lending Agreement (GMSLA) – versions Guidances:
SLRC – Securities Borrowing & Lending Code of Guidance ISLA EU Agency Lending Best Practice Paper UK Agency Lending Code of Guidance
Checklists for Lenders Key Provisions
Capacities of the Parties Title Transfer Payments and Rights
Events of Default Case law: Savings Bank of the Russian Federation v Refco Securities LLC
REGULATION OF THE STOCK LENDING MARKET IN EUROPE The Stock Exchange Rules
RAO under FSMA The Disclosure and Transparency Rules
Financial Collateral Arrangements Shadow Banking concerns
FSB Recommendations Proposals to regulate Securities Financing Transactions (SFTs)
Pension Protection Fund
Course Content
http://redcliffetraining.co.uk [email protected]
+44 (0)20 7387 4484
9:30-17:00
London
£695+VAT (£834)
Discounts available for multiple participants:
3-4 participants: 15% discount per participant 5-6 participants: 20% discount per participant
7-8 participants: 25% discount per participant 9 or more participants: 30% discount per participant
Delivering this course in-house for you to a number of participants could be very
cost effective.