General Information

Fixed Income Securities Lending Glossary

Glossary of acronyms used in this report.

A


Asset/Liability Management

The ability to manage the differences between the assets or securities invested in the cash collateral portfolios and the liabilities or outstanding program loans.

B


Basel III

A global regulatory standard on bank capital adequacy, stress testing and market liquidity risk.


Basis Point

One one-hundredth of a percent of yield; .0001 in decimal form.


Beneficial Owner

A party that is entitled to the rights of ownership of property. In the context of securities, the term is usually used to distinguish this party from the registered holder (a nominee, for example) that holds the securities for the beneficial owner.


Borrower

An individual or organization who borrows securities in return for contracting into an obligation to return those securities, together with a fee payment.

C


Cash Collateral Asset Management

Investment portfolio managers who are responsible for investing the cash taken as collateral from loans of securities. Each portfolio is diversified among different asset classes, based upon investment guidelines developed by CalSTRS, and emphasizes safety of principal and adequate liquidity.


Centralized Counterparty Clearing House

An organization that seeks to facilitate trading, clearing and settlement of securities lending marketplace transactions.


Collateral

An asset, such as U.S. dollars or other liquid securities, which is pledged to a lender in the event that a loan payment cannot be met. The collateral may be appropriated from the borrower and sold in order to fulfill financial obligations.


Collateralized

A security/loan that is secured by an asset.


Counterparty

An individual or organization on the opposite side of a loan.


Custodian

An agent, such as a broker or a bank, which stores a customer’s investments for safekeeping.

D


Dodd-Frank

The Dodd–Frank Wall Street Reform and Consumer Protection Act is a federal statute which implements financial regulatory reform.

F


Fail

The failure to deliver cash or collateral in time for the settlement of a transaction.


FDIC Broker Dealer Default Provisions

Specific section of the Dodd–Frank Wall Street Reform and Consumer Protection Act that creates a new federal receivership process pursuant to which the FDIC may serve as receiver for large, interconnected financial companies, including broker-dealers, whose failure poses a significant risk to the financial stability of the United States.

I


Intrinsic Value

Measures the lending spread received for a loaned security. It is calculated by taking the benchmark rate (typically Fed Funds Open or LIBOR) and subtracting the rebate rate.

L


Lendable Asset

A security that has an established market or demand by borrowers, such as domestic and international equities and fixed income, in order to provide liquidity and facilitate investment strategies.


Lender

An individual or organization that lends securities to a borrower.


Lending Terms

Specific requirements of a loan, such as: length of the loan, type of collateral and rebate rate.

N


Non-Core Investment Program

A program that provides additional income to the fund beyond the traditional asset classes (i.e. Fixed Income, Global Equity, Real Estate, etc.) within the investment office.


Non-Cash Collateral

Where securities such as equities or bonds are pledged to the lender as support of a loan transaction in lieu of cash.

P


Principal

The major party in a transaction.

R


Rebate

The interest rate that the lender pays the borrower on the cash collateral.


Recall

The process of getting shares back from being on loan in order to exercise voting rights or other corporate actions.

S


Securities Lending

An agreement between a lender and a borrower to transfer ownership of a security temporarily in order to earn additional income. The lender retains ownership rights of the security and is entitled to any distributions that occur with respect to that security during the life of the loan, such as coupon and dividend payments. The borrower backs the agreement by delivering collateral to the lender, either in the form of cash, which is currently the dominant form of collateral in securities lending transactions, or other liquid securities, in an amount that exceeds the market value of the securities borrowed.


Specials

Securities that, for any of several reasons, are sought after in the market by borrowers. Holders of special securities will be able to earn incremental income on the securities by lending them out via repo, sell/buy, or securities lending transactions. They typically trade at greater than 20 bps.


Super Specials

Specials that trade at greater than 500 bps.

U


Utilization Rate

The rate that measures the proportion of a lendable portfolio that is on loan. All else being equal, a higher utilization rate should translate to higher income potential.

V


Volker Rule

Specific section of the Dodd-Frank Wall Street Reform and Consumer Protection Act, originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker, to restrict United States banks from making certain kinds of speculative investments that do not benefit their customers.

Commands