Operational processes eliminated
Eliminates the need to post collateral and to request the contract to be unhedged.
Securities Lending – Eliminating the Need to Post Collateral in Broker Dealer Accounts
Securities Lending – Eliminating the Need to Post Collateral in Broker Dealer Accounts
Securities Lending – Eliminating the Need to Post Collateral in Broker Dealer Accounts
When contracting a loan through an OTC broker dealer account, brokerage houses consolidate individual investor contracts into a single contract, positioning themselves as borrowers of individual investors, and open a new contract as lenders with the chief goal of connecting individual to institutional investors.
In this consolidation process, collateral needs to be posted given that assets are free to be transferred instead of being linked only to the loan transaction until the brokerage house transfers it to an institutional investor.
If the collateral balance is insufficient, assets are retained in hedge portfolio 22 until the brokerage house posts the collateral. In this case, besides posting the collateral, brokerage houses need to request the contract to be unhedged to make the lending leg viable for the institutional investor.
In this project, we propose that lending be done through portfolio 22 only for broker dealer accounts and, therefore, there will be no need for collateral to be posted.
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Product benefits
Increased lending volume
The solution will help increase the lending volume, since brokerage houses will no longer need to post collateral to carry out contracts through broker dealer accounts.
Collateral released
Brokerage houses that have posted collateral in broker dealer accounts may have the collateral released for withdrawal.
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More details about the solution
The project aims to allow portfolio 22 to be lent to a broker dealer account.
Thus, there will be no need for risk assessment and assets will be lent directly from portfolio 22 whenever this is the brokerage house's choice.
By default, contracts lent through a broker dealer account will always be directed to hedge portfolio 22, since the broker dealer account aims to connect two different investor profiles (Individual and Institutional investors). If a brokerage house wishes to withdraw the assets from their hedging purpose, it will need to unhedge the contract according to the Clearinghouse's evaluation criteria, following the same existing rules.
When the contract is closed out, the assets will be returned to free portfolio 21 regardless of the portfolio selected as borrower and transactions may be cleared.
Timeline
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07/12/2024
Go-live
Available to the market
Technical details
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Catalog changes
No catalog changes
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Main systems
No system impacted
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Main related functions
No functions impacted
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Certification roadmap
No impact
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What is the Sinacor version?
No impact
