Global Securities Lending
Clients can realize incremental income on assets in their portfolios by lending their securities to qualified borrowers. This strategy can offset custody costs and other administrative expenses, as well as increase the total return of the portfolio – without affecting the investment managers’ trading activity.
What determines the amount of securities lending revenue?
- Size and composition of the portfolio.
- Borrower and collateral restrictions.
- The unique characteristics of securities (e.g. “hot" securities such as equities with large short positions or relatively small floats will generate higher revenue).
- The country of issue (e.g. international lending typically has fewer loans, but higher fees).
Our lending program
Combined with the experience of our parent organizations, CIBC Mellon has been a respected participant in the global securities lending market since 1985. We have expertise in Canadian, U.S. and 20 other global markets. And as a major lending agent, we provide borrowers from around the world with “one-stop shopping” for their securities lending needs.
As an agent, CIBC Mellon:
- Selects borrowers by applying stringent credit guidelines.
- Negotiates rates.
- Monitors loans.
- Provides daily mark-to-market evaluation to ensure adequate collateral coverage.
- Collects fees from borrowers.
- Monitors client accounts for sale activities.
- Provides clients with reporting on outstanding loans and revenue earnings on portfolios.
- Absorbs all infrastructure costs associated with the lending program.
Third party securities lending
CIBC Mellon’s third-party securities lending program provides the opportunity to take advantage of our lending expertise without going through the disruption of transferring your securities to our custody.
Our program is designed to work in conjunction with your overall custody strategy - operating behind the scenes without affecting your investment activities.
Loans that generate optimal revenue while considering all transaction costs are the best opportunities for third-party lending. When tailoring a lending program to meet your needs, CIBC Mellon reviews your portfolio to identify the securities that meet these objectives.
Risk Management
We design our risk management procedures to ensure our lending program recognizes potential risks, and features safeguards that protect our clients.
To manage counterparty risk, CIBC Mellon:
- Conducts a comprehensive credit review of borrowers prior to engaging in any lending activity.
- Ensures industry standard agreements are in place before lending begins.
- Establishes borrower credit limits that are reviewed quarterly.
- Monitors credit usage daily.
- Conducts daily mark-to-market evaluations to ensure adequate collateral coverage.
To manage operational risks, CIBC Mellon:
- Generates daily summarized exposure and activity reports that are reviewed by our senior management.
- Separates trading and operations functions to ensure adequate controls.
To manage system risks, CIBC Mellon:
- Conducts daily and monthly system back-ups and stores the tapes off-site.
- Holds business recovery tests annually and maintains an alternate location to conduct business operations in the event of a disaster.
Reporting
We provide reports to our securities lending clients in an easy to read format, with detail and summary information such as:
- Name and amount of the security loaned (broken down by security classification).
- Name of borrower.
- Amount of time the loan has been outstanding.
- Income earned and received.
- Credit quality.
- Average maturity.
Reporting is available in local and base currency terms, with a wide range of filters for currency, country, location and asset type.
We also provide clients with our monthly commentary on the global securities lending marketplace. It includes analysis of market trends by sector, assessment of significant economic events, high-profile mergers and acquisitions and other capital stock activity from a securities lending perspective.