Stock Borrowing And Lending Agreement Hong Kong

Lenders control risks primarily through the use of collateral and clearing. Many of the significant losses associated with securities lending over the years are related to the reinvestment of the cash guarantee. Taking securities as collateral avoids the risk of reinvestment, but the lender is exposed to the risk of poor securities pricing and liquidity risk if it attempts to realize its assets. There is also a risk of incongruity in the collateral and portfolios borrowed, i.e. the borrowed securities may increase in the price while the guarantees decrease. In 1999, HKSCC introduced a facility that allows it to borrow shares from participants in order to meet HKSCC`s settlement obligation to participants with long net settlement positions (CNS). However, this installation is not widely used. It goes without saying that this is due to the fact that the settlement-delivery efficiency of the central clearing and settlement-delivery system (CCASS) on T-2 already exceeds 99%, which is why the demand for equity loans to cover unclarified long positions is low. The loan period is also very short, one to two days, so that the corresponding loan fee would be negligible in relation to the administrative burden. A fixed credit commission of 4 per cent per annum is paid by HKSCC to the lender.

HKSCC does not pursue guarantees to the lender. These last rules may not be very attractive to some participants. Settlement coverage was historically the origin of the securities lending activity. For less liquid securities, such as corporate bonds and limited dispersed-ownership equities, settlement coverage now accounts for a significant portion of credit demand. Borrowing to cover the settlement is essential to the resolution process. As a result, certain securities deposits have entered into the automated securities lending operation, in which clients automatically make their securities available for loan by the custodian. In some less mature markets, such as Korea, the custodian has managed to capture much of LBL`s local market. However, in more mature markets such as Singapore, the largest players in the sector are already supplied. These players most often have global operations and are looking for counterparties that have a global offer; In addition, they have integrated systems and standard global practices.