Updated best practices paper to be published in Q4
05 September 2017
eSecLending is preparing to publish the third edition of its Best Practices for Â鶹´«Ã½ Lending whitepaper. Here, the agent lender provides a preview
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eSecLending is preparing to publish the third edition of its Best Practices for Â鶹´«Ã½ Lending whitepaper.
The paper provides practical information for all beneficial owners as it incorporates best practice suggestions that are helpful inside and outside of the board room and covers topics ranging from market players, routes-to-market and types of loans to risks and programme oversight. The paper was originally published in 2012 with the help from other industry participants.
Below, please find an excerpt from the Approval and Oversight of Â鶹´«Ã½ Lending Programmes section of the paper.
Those responsible for approving and overseeing their fund’s securities lending service providers will play a role in defining the parameters of the programme and overseeing it on an ongoing basis.
The lender should be satisfied that full due diligence has been undertaken at the commencement of a securities lending arrangement, and that compliance and due diligence are regularly reviewed as the programme continues. On an ongoing basis, the lender should employ its business judgement to evaluate the nature and quality of the services provided by the securities lending agent, as well as the competitiveness of the fees charged by the agent.
Best practice notes: Some lenders have found it useful to form a small working group comprised of operations, compliance, portfolio management, risk management, trading, legal and tax departments to assist in monitoring the securities lending programme and performing due diligence with respect to providers. The group’s activities focus primarily on monitoring the key elements of the securities lending policy and reporting periodically to an oversight board.
Â鶹´«Ã½ lending policy
The lender should have written securities lending policies and procedures that have been approved by the oversight board. The securities lending policy should reflect the nature and extent of the risks the lender is willing to accept in the programme and set parameters that will ensure the programme will remain within its risk tolerances.
Best practice notes: In programmes where a lending agent is being appointed, the policies and procedures should state that the lending agent must be aware of the written securities lending policy and the securities lending agreement should adhere to this. Policy elements may include: choice of route-to-market, fees and revenues to be paid, approved borrower and selection criteria, restricted borrowers, approved markets and criteria to determine market choices, approved or excluded assets for lending, buffer to ensure lender receives corporate actions notifications, proxy voting, reinvestment guidelines, and many more.
Oversight board reporting
The oversight board should receive regular securities lending reporting from the working group (which monitors reporting from the lending agent). These periodic reports should include: compliance reporting, risk management commentary, income earned, performance benchmarking comparing your programme to your programme goals and to peer performance, market updates, and relevant information concerning securities lending trends.
External Information
In some cases, particularly for UCITS funds and US mutual funds, information about the lender’s securities lending policy and activities may need to be disclosed for shareholders in the fund’s prospectus. To further improve transparency, lenders may find it beneficial to have a public statement of their approach to securities lending on their website.
This should also be shared with other external facing employees, such as a call centre or public relations departments in the form of a frequently asked questions document. This allows for controlled and consistent disclosure when responding to external queries.
Changes to the securities lending programme
Proposed changes to the securities lending programme that require alteration to the securities lending policy must be approved by the oversight board. Proposed changes to the securities lending programme that are within the existing parameters set forth in the securities lending policy should be reported to the oversight board as an update.
The paper provides practical information for all beneficial owners as it incorporates best practice suggestions that are helpful inside and outside of the board room and covers topics ranging from market players, routes-to-market and types of loans to risks and programme oversight. The paper was originally published in 2012 with the help from other industry participants.
Below, please find an excerpt from the Approval and Oversight of Â鶹´«Ã½ Lending Programmes section of the paper.
Those responsible for approving and overseeing their fund’s securities lending service providers will play a role in defining the parameters of the programme and overseeing it on an ongoing basis.
The lender should be satisfied that full due diligence has been undertaken at the commencement of a securities lending arrangement, and that compliance and due diligence are regularly reviewed as the programme continues. On an ongoing basis, the lender should employ its business judgement to evaluate the nature and quality of the services provided by the securities lending agent, as well as the competitiveness of the fees charged by the agent.
Best practice notes: Some lenders have found it useful to form a small working group comprised of operations, compliance, portfolio management, risk management, trading, legal and tax departments to assist in monitoring the securities lending programme and performing due diligence with respect to providers. The group’s activities focus primarily on monitoring the key elements of the securities lending policy and reporting periodically to an oversight board.
Â鶹´«Ã½ lending policy
The lender should have written securities lending policies and procedures that have been approved by the oversight board. The securities lending policy should reflect the nature and extent of the risks the lender is willing to accept in the programme and set parameters that will ensure the programme will remain within its risk tolerances.
Best practice notes: In programmes where a lending agent is being appointed, the policies and procedures should state that the lending agent must be aware of the written securities lending policy and the securities lending agreement should adhere to this. Policy elements may include: choice of route-to-market, fees and revenues to be paid, approved borrower and selection criteria, restricted borrowers, approved markets and criteria to determine market choices, approved or excluded assets for lending, buffer to ensure lender receives corporate actions notifications, proxy voting, reinvestment guidelines, and many more.
Oversight board reporting
The oversight board should receive regular securities lending reporting from the working group (which monitors reporting from the lending agent). These periodic reports should include: compliance reporting, risk management commentary, income earned, performance benchmarking comparing your programme to your programme goals and to peer performance, market updates, and relevant information concerning securities lending trends.
External Information
In some cases, particularly for UCITS funds and US mutual funds, information about the lender’s securities lending policy and activities may need to be disclosed for shareholders in the fund’s prospectus. To further improve transparency, lenders may find it beneficial to have a public statement of their approach to securities lending on their website.
This should also be shared with other external facing employees, such as a call centre or public relations departments in the form of a frequently asked questions document. This allows for controlled and consistent disclosure when responding to external queries.
Changes to the securities lending programme
Proposed changes to the securities lending programme that require alteration to the securities lending policy must be approved by the oversight board. Proposed changes to the securities lending programme that are within the existing parameters set forth in the securities lending policy should be reported to the oversight board as an update.
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