Repo and Stock Loan Transactions

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Barclays Capital

Repo and Securities LendingProduct Guide


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Table of Contents

Introduction 1

Brief History of the Repo and Securities Lending Market 2

Repurchase Agreements 3-4

A Repo Transaction in Detail 5

A Reverse Repo Transaction in Detail 6

Sell and Buy-Backs 7

A Sell/Buy-Back Transaction in Detail 8

A Buy/Sell Transaction in Detail 9

Securities Lending 10

Securities Lending, Transaction in Detail 11-13

Guidelines for Investing in Repo 14

Collateral Types 15

Tri-Party Repo 16

How Does a Tri-Party Repo Work? 17-18

Summary of Product Features 19

Glossary 20-24

Contacts 25


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Introduction

Barclays Capital has positioned itself to offer the products of International Repo and Securities

Lending. With emphasis on portfolio performance and yield enhancement, the InternationalRepo and Securities Lending markets provide attractive options to both the cash investor andthe security owner. This exceptional money market instrument allows cash investors to bettermanage their cash. Barclays Capital is a dedicated market professional in this forum and iscommitted to the continued use and development of this global product. Securities holdersare able to take advantage of their current portfolio holdings and through lending, enhancetheir portfolios profitability.

The Barclays Group is one of the leading global financial institutions and one of the premierbanks in the United Kingdom. This institution is over 300 years old and continues today itstraditions of quality, service, financial innovation and financial stability. Barclays Capital is the

investment banking division of Barclays Group, with offices in Europe, the Americas and Asia.

The Barclays Capital Repo team includes desk trading in 12 currencies and the emergingmarkets with offices located in London, Tokyo, Paris and New York ensuring full coverage ofthe Global Repo and Securities Lending markets.

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Brief History of the Repo and SecuritiesLending Market

The Securities Lending and Repurchase Agreement (Repo) Market developed in the US tobetter meet domestic trading obligations and to reduce the cost of failed trades. During the1980s and early 1990s, Repo made a natural progression toward the European continent aswell as in the Pacific Rim and on 2 January 1996, the United Kingdom began trading Gilt Repo.It continues to be an ever increasing global market with growth in Emerging Markets, such asLatin America, South America, Mexico, Russia, Eastern Europe and Southeast Asia.

Clearstream and Euroclear, two major international clearing agencies, were the first in Europeto begin a Securities Lending program to facilitate the receipt and delivery of securitiesg lo ba l l y. Their Securities Lending pro g rams we re aimed at reducing existing marke tinefficiencies and the number of failed trades. As both domestic and international derivativeproducts (specifically futures and options) began to take hold, broker/dealers sold short withmore regularity. The Group of 30 highlighted securities borrowing and lending as a vehicle thatwould, in the coming years, lead to increased market liquidity. As a result, the demand toborrow securities has expanded and Repo and Securities Lending as a means of reducingrelated costs has become a major product focus.

In order to reduce these costs and increase accessibility to supply, internationalbrokers/dealers began to seek out international investors directly. The International Repo andSecurities Lending markets have attracted numerous participants including central banks,corporate cash managers, banks, pension funds, insurance companies, mutual funds andarbitrators.

Today the Global Repo and Securities Lending markets provide users with a wide variety ofproducts in all major currencies (US $, Euro, Japanese Yen as well as sterling, Skandanavia(list), Australian & New Zealand $ and most emerging markets).

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Repurchase Agreements

Repurchase Agreements, commonly referred to as Repos, are money market transactions inwhich one party sells securities to another while agreeing to repurchase those securities at a

forward date. These transactions possess several characteristics associated with a securedloan, with the lender of money receiving securities as collateral to protect against borrowerdefault. In fact, Repos are frequently viewed by some market participants as securities saleswith subsequent repurchases and secured loans by others. However, a distinguishingcharacteristic of a Repo is that the title of the securities distinctly passes from the buyer to theseller. Parties providing money are referred to as investors while parties providing securitiesa re re fe r red to as sellers. The terms securities and c o l l a t e ral are genera l l yinterchangeable.

The terms Repurchase Agreement, Repo, Reverse Repo, and Resale are all used todescribe the same transaction. One firms Repo is another firms Reverse Repo; both are the

same transaction viewed from two different perspectives. It is common street practice forboth parties to view the transaction from the dealers perspective. A dealer looking to borrowmoney is transacting a Repo, while a dealer looking to obtain securities is executing a ReverseRepo. Accordingly, when a client delivers money to a dealer, the transaction is often termed aRepo by both parties.

Points to Summarize

One firms Repo is another firms Reverse Repo Dealer borrowing money is Transacting Repo Dealer obtaining securities is Transacting a Reverse Repo Street convention is for both parties to view trades from the dealers perspective

Examples in this book will refer to all transactions from the dealers perspective.

The Advantages of Repo

There are many ways that Repo can enhance the portfolio profitability and enable greatermarket efficiency. Listed below are a few advantages to customers and dealers.

For the Customer

Repo (cash investors)

Completely flexible regarding term Invest short term cash in a fully collateralized vehicle Competitively yielding money market investment

For the dealer/broker

Repo is used to: Finance long positions Reduce funding costs Enhance trading efficiency Facilitate matched-book and cash trading

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Barclays Capital specifically tailors Repo transactions as money market instruments for variouscustomers in this market. These customers usually comprise two groups: cash investors and

the security holders.

Cash investors who find themselves long of cash can utilize Repos as a collateralizedinvestment for a short period of time. Since this market has become more international inscope, investments may be made in all major currencies and transactions can be specificallytailored to customers needs. Security holders are able to take advantage of their currentportfolio holdings and thus enhance their portfolios profitability.

The following describes the types of products offered in Repo. Barclays Capital makes marketsin all the products discussed.

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Repo Transaction in Detail

Barclays Capital sells securities versus a transfer of cash from the investing customer with asimultaneous agreement to repurchase the same securities at a future date. The securities are

valued at the current market price plus all accrued interest to settlement date. At thetermination of the Repo, the securities are repurchased at the original price value (marketprice + accrued interest), plus Repo interest. The price of the security remains the same as theterm of the trade. All coupon interest which accrues during the term of the transaction is paidto the original seller of the securities.

Example

A customer has $139,695,652 to invest for 14 days from 1 Nov 2002 to 15 Nov 2002. BarclaysCapital can provide the UST Bond 8% 11/15/21 as collateral and quotes a Repo rate of 1.58%;hence the customer will earn Repo interest of $85,835.22.

Calculation

Current Market Price 136Accrued interest as of 1 Nov 2002 .36956522

All in Price 139.6956522

Nominal Bonds pr ovided by Barcla ys Capital

Investment Amount /(all in price/100) = 139,695,652/(139.6956522/100) = 100,000,000Bonds

Repo interest to be paid to the customer:

139,695,652 * (14 days/360 days) * 1.58% = $85,835.22

Flow1 Nov 2002

15 Nov 2002


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A Reverse Repo Transaction in Detail

Barclays Capital purchases securities versus a transfer of cash with a simultaneous agreementto resell the same securities at a future date. The securities are valued at the current market

price plus all accrued interest to date. At the termination of the Reverse Repo, the securitiesare resold at the original principal value (market price + accrued interest, plus Repo interest).The price of the security remains the same for the term of the trade. All coupon interest whichaccrues during the term of the transaction is paid to the original seller of the securities.

Example

A customer has 125,000,000 of US Treasury 5 year note, 4 3/8 15 May 2007 to loan to the nextrefunding date which is 15 August 2002 hence the Repo trade will have a duration of 72 days(4 June 2002 to 15 August 2002). Barclays Capital quotes a Reverse Repo rate of 1.20%.

Calculation

Current Market Price 100.26228Accrued Interest as of 4 June 2002 0.23772000All in Price* 100.50000

*When quoting a dollar price in the Repo market it will always be quoted as an all in price which is the

current market price of the bond + accrued interest up to and including that date.

Cash provided by Barclays Capital =

Nominal amount * (all in price)/100) = 125 million bonds * 100.50000/100 =USD 125,625,000

Flow4 June 2002

15 August 200 2

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A Sell/Buy Back Transaction in DetailBarclays Capital sells for a specific period of time with a simultaneous agreement to buy backthe same securities at a future date for a price which is calculated to reflect the implied rate of

return (Repo Rate). The securities are valued at the current market price plus accrued interestto settlement date. At the termination of the Sell/Buy-Back transaction, the securities arebought back by Barclays Capital at the predetermined price.

Example

A customer has EUR 50,737,985 to invest from 15 May 2002 to 17 June 2002. Barclays Capitalwill provide an Italian Government Bond BTPS 4% due 15 July 2004 as collateral and quotes aRepo rate of 3.25%; hence the customer will earn Repo interest of EUR 151,156.91.

Calculation

Pricing the Sell transaction for 15 May 2002

Current clean market price 100.15Accrued interest as of 15 May 2002 1.32597All in price* 101.47597

Nominal bonds provided by Barclays Capital = investment amount/(all in price)/100) =50,737,985/(101.47597/100) = 50,000,000.

Calculating the sell price

All in price = (investment amount/nominal amount) * 100 = 50,737,985/50,000,000 * 100 =101.47597

All in sell price = all in price accrued interest to 15 May 2002 = 101.47597 1.32597 = 100.15

Pricing the Buy-Back transaction for 17 June 2002Financing interest to be paid to the customer = 50,737,985 * (33 days/360 days) * 3.25% =DEM 151,156.91

All in price = (investment amount + Repo interest/nominal amount).100 = 50,737,985 + 151,156.91/50,000,000*100 = EUR 101.7782838Minus accrued interest as of 17 June 2002 1.6906100Buy-Back Price Clean 100.087674

Thus Barclays Capital buys back 50,000,000 bonds at a clean price of 100.087674

* Prices used in Sell/Buy-Back transactions are quoted on a clean basis. In other words, this financing

transaction more closely mirrors the settlement of the bond in the cash market. So the bond will settlewith the cumulative Repo interest to date (mirroring the money settlement of a Repo). The real differencein a Sell/Buy-Back is the calculation of the clean price on the Buy Back of the forward side of the trade.

Flow15 May 2002

17 June 2002

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Securities Lending

Background

Whereas Repo are executed exclusively versus cash, the loan of securities can be transactedversus three types of collateral: cash, securities or letters of credit. The borrowed securities arevalued at the current market price plus all accrued interest to date (where applicable). At thetermination of the loan, these securities are returned at the original principal value plus asecurities fee (for non-cash collateral) or rebate (for cash collateral). The lender of thesecurities retains incidence of ownership, receives all coupon interest on dividends paid andbenefits from any corporate actions taken during the term of the loan.

Cash is by far the most common form of collateral, accounting for about 95% of outstandingloans. In securities loan versus cash the dealer puts up cash and may give reverse margin.Dealers provide reverse margin as an enticement to institutional investors to lend issues. They

receive a rebate on these funds, meaning that the securities lender/agent pays the dealer astated return on these funds.

The advantages of Securities Lending for the customer

Securities Lending (security holders)

Enhance yield. Earn incremental income. Maximize portfolio returns.

The advantages of Securities Lending for the broker/dealer s

Securities Lending

Cover short positions. Facilitate matched-book and cash trading. Reduce fails. Increase operational efficiency.

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Securities Lending Transactions in Detail

Generally, there are three types of Securities Lending Transactions:

1. Borrow versus Cash Term (Bonds)2. Borrow versus Cash Open Basis (Bonds)3. Borrow versus Pledge of Securities (Bonds)

The following examples help describe the economics of each

Example 1

Borrow versus cash Term (Bonds)

Barclays Capital wants to borrow 11,000,000 Ford 6% 02/05 denominated in Euro 22 July

2002 to 22 Aug 2002. Barclays Capital will accept a rebate rate of 2.25% and provide Euro cashas collateral.

Calculation

Current Market Price 102.402740Accrued interest as of 22 July 2002 2.59726

All in Borrow Price 105.00

Rebate interest to be paid by the customer =11,550,000 * (31 days/360 days) * 2.25% = EUR 22,378

Flow22 July 2002

22 August 2002

Example 2

Borrow versus cash Open Basis (Bonds)Suppose Barclays Capital is short the current US Treasury 5 year note, and must borrow theissue to meet delivery obligations. With general collateral government Repo trading at 1.75%,a Security Lending agent bank on behalf of an underlying institutional investor offers 50million of the 10 year note, which in this case is the US Treasury Note 4 3/8 05/07, to BarclaysCapital against cash collateral, with a rebate of 0.65% and an open maturity date. Through


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a simultaneous delivery of cash for securities, the lending agent obtains cash, andimmediately invests the money in a government Tri-Party Repo on an open basis. The lending

agent would generate a 110 basis point spread on the trade, which it would share with theinstitutional investor based on their lending agreement.

Since the trade was executed on an open basis, both parties may terminate the transaction thenext day, or renegotiate the terms. The next morning, demand is slightly less to borrow thecurrent long bond, so the lender/agent offers the issue at a rebate of 1.00. US governmentgeneral collateral is still trading overnight at a rate of 1.75% This negotiation continues on adaily basis (agreeing on some days to leave unchanged) and is closed out by one of thecounterparties 12 days later as shown in the example below.

The lender/agent can lock in the spread between GC and the special rate reinvesting indelivered Repo or they can alternatively opt for Tri-Party Repo collateralized with other typesof collateral, such as TIPS/Agencies or Corporates at a 3 and 8 basis point yield enhancement

over US Treasury or sovereign debt security Repo.

Calculation

Current market price as of August 16 100.727678Accrued interest as of August 16 1.1056386All in Borrow Price 101.8333166

Rebate interest calculation16-19 August 2002 Agreed rebate rate (weekend) .65%19 August 2002 Negotiated new rate 1.00%20 August 2002 Negotiated new rate .75%

24 August 2002 Negotiates new rate .80%28 August 2002 Trade closed out 9.15%

Average Rebate Rate (9.15%/12 Days) .7625

Rebate interest to be paid by the customer =50,916,658.30* (12 days/360 days) * 76.25 bps (.007625) = USD 12,941.32

* Assumes 100% collateralization no haircut

Flow16 August 2002

28 August 2002

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Example 3

Borrow versus Pledge of Securities (Bonds)

Barclays Capital wants to borrow 100mm German DBR 4 3/4 4 September 2008 and willpledge the Italian Government Bond BTPS 4 1/2 May 2009. Barclays Capital is willing to pay aborrow fee of 30 basis points for two weeks. For ease of settlement, both the borrow and thepledge will settle versus cash but the cash amount will be identical.

Calculation of the Collateral Value Required

Current market price of the DBR 4 3/4 4 Sep 2008 100.67Accrued interest as of the 0.6246575

All in Borrow Price 101.2946575

Value of the collateral required = Value of the bonds borrowed(100,000,000 * 101.2946575/100 = 101,294,657.50)

Calculation of the Nominal Amount of the PledgeCurrent market price BTPS 4 1/2 May 2009 99.95Accrued interest as of 1.36957

All in Pledge Price 101.31957

Nominal bonds required = value of the bonds borrowed/(pledge price/100) =101,294,657.50/(101.31957/100)=99,975.412. The nominal amount for the pledge should berounded up to the nearest 10,000, hence the nominal amount would be 99,980.000

Calculation of the fee payment

Fees payable = trade value amount of bonds borrowed * (# days borrowed/360 days) * borrowfee = 100 million * (14 days/360 days) * .003 = EUR 11,666.67

Barclays Capital will return the pledged securities versus, the original amount + fees(101,294,657.50+11,666.67=101,306,323.17)

Flow21 August 2002

4 September 2002


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Guidelines for Investing in Repo

The economic benefits of financing transactions can be substantial for the lenders of cash.The risk/reward analysis is greatly in favor of the investor when the business is done prudently.

Here are a few general suggestions to consider when entering this market:

1. Know your counterparty

Evaluate customer credit worthiness to ensure a high degree of safety. Only deal with reputable firms.

2. When possible, accept delivery of collateral

Transfer collateral to your custody account through a Tri-Party or DVP transaction. If absolutely necessary, take physical possession of securities.

Only execute segregation Repo with well capitalized, reputable dealers.

3. Maintain proper margin

Maintain proper margin by marking to market collateral when necessary. Enter into Tr i - Party agreements when possible to provide for facilitated marg i n

maintenance.

4. Obtain proper documentation

Execute a master repurchase agreement with all counterparties where possible (this is

absolutely necessary for the trading in the US, UK, and all Emerging Markets Repo). Receive trade confirmations and telexes on a timely basis. If transacting Sale/Buy-Back arrangements (spot and forward trades), obtain timely

confirmation of both sides of the trade at its inception.

5. Ensure accurate pricing of collateral

Always use full-accrual pricing (which includes accrued interest). Use current market prices in all transactions. When possible, independently confirm prices to ensure proper collateralization.

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Collateral Types

The following is a list of countries and collateral types that are traded in Repo. We have notlisted every country and are not limited to dealing in only these currencies.

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AustraliaAustralian Government and semi-government bonds

CanadaGovernment Guaranteed bonds and bills only

EECAll EC sovereign debt excluding Greece and Portugal, Supranational to include EIB, IBRD,EEC,EBRD, Eurofima Council of Europe

Emerging Market Repo

Government and Corporate Debt

EuroAll 12 Euro Countries Bills, Notes & BondsAustria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, theNetherlands, Portugal, Spain

JapanClean JGB only, Euroyen

New ZealandNew Zealand Government Bonds

UST-Bills, Notes, Bonds, Strips, Agencies, GNMA, Remics, AA Pass Throughs

UKGilts, Eurosterling

Corporate Bonds All Currencies


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Tri-Party Repo

What is Tri-Party Repo? A Tri-Party Repo puts a dealer, cash lender and third party custodianbank together to enter into a Tri-Party arrangement in which the custodian bank acts as

intermediary in the Repo transaction between the cash investor and Barclays Capital. TheseRepo are governed by a separate legal agreement executed by all three parties. This agreementoutlines the responsibilities of each party and the procedures for the day-to-day transactions.

Procedures for Tri-Party Repo

A cash investor shops around the market looking for the competitive Repo Rate for theirTri-Party investment.

The rate on these third party Repo investments will be dependent on the collateral theinvestor is willing to accept. eg. A counterpart willing to take governments only may

receive a quote of Fed Funds Flat on an over night investment. However, if the collateralacceptable is expanded to include TIPS, Agencies, and Corporates. They could see a returnof Fed Funds + 5-7 basis points.

Custodian receives money from the lender and securities from the dealer. The bank thencredits the dealers cash account while simultaneously moving collateral to the cashlenders custody account.

Collateral actually moves from the dealers clearing account to the cash lenders custodyaccount within the bank. The cash lender actually possesses collateral in its custodyaccount at the custodian bank.

Custodian usually prices collateral using an outside pricing service.

Almost always, the custodian bank in a Tri-Party arrangement is the dealers clearing bank.

Since the collateral moves within the same bank, the dealer only pays an internal transferfee, not a more costly depository transfer fee.

Outstanding Tri-Party Repo collateral is marked to market by the bank to ensure propermargining as collateral values fluctuate.

Cash lenders can ascertain which specific securities are being held in their custody

accounts later that day. Custodian bank also mails hard-copy confirmations detailingcollateral for all Tri-Party transactions.

Cash lenders receive slightly higher yields on Tri-Party versus DVP Repo due to the slightlylower cost of settlement and flexibility or the trade for the dealer, as well as a reducedlikelihood of a day light overdraft in the dealers account when trades mature.

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How Does a Tri-Party Repo Work?

A Tri- Party pictorial

Start Date

1. The Broker Dealer and customer trade.2. The customer wires money to their account at the third party agent (custodian bank or

clearing house).3. Barclays Capital instructs the agent to move securities from its account to the Tri-Party

customer collateral account.4. The customer instructs the agent to move funds from its account to Barclays Capitals

account.5. After the third party agent values the security and verifies that the collateral is within the

agreed parameters, the agent will then simultaneously move the securities into the

customers account and release the funds to Barclays Capital account.6. The agent and Barclays Capital will send a collateral confirmation to the customer.


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Advantages of Tri-Party Repo

Flexibility customers can choose the specific types of collateral acceptable to them,define the margin required and outline the daily reporting requirements.

Security the third party custodian handles all aspects of collateral management,including the daily mark to market function and any resulting margin calls. The custodianalways ensures that there is complete segregation of collateral into the investingcustomers account.

Efficiency the operational flows become streamlined with regard to settlements andcashflows.

Cost effe c t i veness the Tr i - Party arrangements result in the elimination ofdelivery/receive transaction costs to the investing customer. Barclays Capital will incur thecosts of the customers accounts at the Tri-Party bank. This results in the overall reductionof costs to the investing customers.

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Summary of Product Features

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GLOSSARY

Accounting TreatmentA trade executed for a fixed period of time. The counterparties agree to and fix the rebate rate,

quantity of securities and trade duration at the onset of the trades.

AgentA party to a loan transaction that acts on behalf of a client. The Agent does not typically takerisk in a transaction.

All-in PriceMarket price of a bond plus accrued interest.

Approved BorrowerA borrower that has been formally approved by the UK Inland Revenue to transact overseas

Securities Lending activity through the UK.

Basis PointOne one-hundredth of one percent (.0001 or .01%).

Bearer SecuritiesSecurities that are not registered to any particular party on the books of the issuing companyand hence are payable to the party that is in possession of them.

Buy-inThe practice of a lender of securities entering the open market to buy securities to replace

those that have not been returned by a borrower. Strict market practice governs Buy-Ins.

Buy/Sell Sell/BuyTypes of bond transactions that in economic substance replicate Reverse Repo and Repo,respectively. These transactions consist of a purchase (or sale) of a bond versus cash with aforward commitment to Sell-Back (or Buy-Back) the securities. Used as an alternative toRepo/Reverse-Repo. There is now a special annex to the standard Repo agreement forBuy/Sell-Back trades. This annex provides for margining Buy/Sell-Back transactions.

CarryDifference between interest return on securities held and financing costs. Negative carry: Netcost incurred when cost of carry exceeds yield on securities which are being financed. Positive

carry: Net gain earned when cost of carry is less than yield on financed securities.

CollateralSecurities or cash delivered by a borrower to a lender to support a loan of securities or cash.

CustodianAn entity such as Euroclear, Cedel or Bank of New York that holds securities of any type forinvestor, effects deliveries, and supplies appropriate Reporting.

DeliverySecurities are delivered physically to the counterpartys custodian bank. These are typically

done versus payment.

DistributionEntitlements arising on securities that are loaned out eg dividends, interest and non-cashdistributions.

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DVPDelivery versus payment, or the simultaneous delivery of securities against the payment of

funds.

ERISAThe Employee Retirement Income Security Act, a US law governing private US pension planactivity, introduced in 1974 and amended in 1981 to permit plans to lend securities inaccordance with specific guidelines.

FailThe failure to delivery cash or collateral for settlement. In certain jurisdictions this may resultin heavy fines or license suspension.

General Collateral (GC)Securities that are not special (see definition p. 26) in the market and that may be used,typically, simply to collateralize cash borrowings. Also called stock collateral.

Global Master RepurchaseThe market standard Repo document used by non-dollar Agreement (GMRA) Re popractitioners. The GMRA is based on the US PSA Master Repurchase Agreement, wasintroduced in November 1992 and subsequently updated, and is endorsed by the PSA andISMA.

HaircutInitial margin in a Repo transaction. Generally expressed as a percentage of the market price.

Hold-in-Custody (HIC)Borrower of cash segregates collateral in a specific Repo internal account for the cash lender,rather than delivering out collateral.

Initial MarginThe amount by which the market value of the collateral in a trade exceeds the amount ofunderlying cash or securities lent.

ISMAThe International Securities Market Association is an organization of international bond

dealers and maintains offices in Zurich. ISMA is the industry group that sets standards ofbusiness conduct in the fixed income securities market, advises regulators on marketpractices and provides educational opportunities for industry participants.

Legal DocumentationSeparate agreements exist for Repo Buy/Sell-Back and Securities Lending. Counterpartiesshould enter into one form of agreement or another in order to address issues regardingd e fault, confirmation, definitions, processing, etc. Please contact the Barc lays Capitalrepresentative in your region to obtain the necessary documentation.

Manufactured Dividends

When securities that have been lent out pay a cash dividend, the borrower of the securities isgenerally contractually obligated to pass on the distribution to the lender of the securities. Thepayment pass through is known as a manufactured dividend.

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Margin VariationOnce the Repo or Securities Lending transaction has settled, the margin variation refers to the

band within which the value of the securities used as collateral may fluctuate before triggeringa margin call. Variation margin may be expressed in either percentage or absolute currencyterms. The GMRA states that all legitimate requests for variation margin must be honored.

Mark to MarketThe act of revaluing the security collateral in a Repo Securities Lending transaction to currentmarket values. This may be done daily or at a suitable interval agreed upon by the parties to atransaction.

Market ValueThe value of securities or collateral as determined using the last (or latest available) sale price

on the principal exchange where the instrument was traded, or if not so traded using the mostrecent bid and offered prices.

Matched/Mismatched BookRefers to the interest rate arbitrage book that a Repo trader may run. By matching ormismatching maturities, rates, currencies or margins, the Repo trade generates a P & L.

Open demand transactionsRepo and Securities Lending trades that can be closed out by either counterparty at anytime,giving the sufficient amount of notice for standard settlement in that market.

PrincipalA party to loan transaction that acts on its own behalf or substitutes its own risk for that of itsclient when trading.

PSAThe Public Securities Association is a US-based industry organization of participants involvedin certain sectors of the bond market. The PSA established non-binding standards of businessconduct in the fixed income securities market and advises regulators and others on marketpractices.

Rebate RateThe interest rate paid on the cash side of a Securities Lending transaction. A rebate rate of

interest implies a fee for the loan of securities.

RecallA request by a lender for the return of securities from a borrower.

RepoTransaction whereby one party sells securities to another party and simultaneously agrees torepurchase the securities at a future date at a fixed price. Used to generate funding or toincrease yield on an investors long securities positions.

Repo Rate

The interest rate paid on the cash side of a Repo/reverse transaction.

RepricingOccurs when the market value of a security in a Repo or Securities Lending transactionchanges and the parties to the transaction agree to adjust the amount of securities or cash ina transaction to the correct margin level.

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ReturnOccurs when the borrower of securities returns them to the lender.

Reverse RepoTransaction whereby one party purchases securities from another party and agrees to resellthe securities at a future date at a fixed price. Typically used when the party which is long cashis providing funding to another counterparty or when a party needs to borrow a security inorder to cover a short position.

RollTo renew a trade at its maturity.

Safekeeping

In Repo and Sell/Buy-Back transactions when a counterparty does not wish to take delivery,securities can be moved into a segregated account at a Barclays Capital clearing agent. Thesecurities are held on the books and records of Barclays Capital on the customers behalf. Eachtransaction is confirmed by telex or facsimile. Securities may be substituted daily and witheach substitution, a new telex or facsimile is generated.

Stock Borrow and Loan Committee (SBLC)A UK based committee of international lending market practitioners chaired by the Bank ofEngland and administered by the London Stock Exchange.

SettlementRepo and Securities Lending are typically transacted on a two or three day forward basis.Standard delivery instructions for the various currencies are used. Counterparties shouldagree to the settlement instructions on each individual trade.

SpecialsSecurities that, for several reasons, may be sought after in the market by borrowers. Holdersof special securities will be able to earn incremental income on the securities by lending themout via Repo, Sell/Buy or Securities Lending transactions.

SpotStandard non-dollar Repo settlement, two business day forward.

SubstitutionThe ability of a lender of general collateral to recall it from the borrower and replace it withother securities of the same value.

Term TransactionA trade that goes on for a determined period of time.

Tri-Party RepoRepo used for funding/investments purposes in which bonds and cash are delivered by thetrading counterparties to an independent custodian bank or clearing house (the Tri-PartyCustodian) that is responsible for ensuring the maintenance of adequate collateral value both

at the outset of a trade and over its term. The Tri-Party Custodian marks the collateral tomarket daily and makes margin calls on either counterparty, as required. Tri-Party Reporeduces the operations/systems barriers to participating in the Repo market.

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This publication has been prepared by Barclays Capital (Barclays Capital) - the investmentbanking division of Barclays Bank PLC. This publication is provided to you for information

purposes only. Prices shown in this publication are indicative and Barclays Capital is notoffering to buy or sell or soliciting offers to buy or sell any financial instrument. Theinformation contained in this publication has been obtained from sources that Barclays Capitalbelieves are reliable but we do not represent or warrant that it is accurate or complete. Theviews in this publication are those of Barclays Capital and are subject to change, and BarclaysCapital has no obligation to update its opinions or the information in this publication. BarclaysCapital and its affiliates and their respective officers, directors, partners and employees,including persons involved in the preparation or issuance of this document, may from time totime act as manager, co-manager or underwriter of a public offering or otherwise, in thecapacity of principal or agent, deal in, hold or act as market-makers or advisors, brokers orcommercial and/or investment bankers in relation to the securities or related derivatives

which are the subject of this publication.

Neither Barclays Capital, nor any affiliate, nor any of their respective officers, directors,partners, or employees accepts any liability whatsoever for any direct or consequential lossarising from any use of this publication or its contents. The securities discussed in thispublication may not be suitable for all investors. Barclays Capital recommends that investorsindependently evaluate each issuer, security or instrument discussed in this publication, andconsult any independent advisors they believe necessary. The value of and income from anyinvestment may fluctuate from day to day as a result of changes in relevant economic markets(including changes in market liquidity). The information in this publication is not intended topredict actual results, which may differ substantially from those reflected.

This communication is being made available in the UK and Europe to persons who areinvestment professionals as that term is defined in Article 19 of the Financial Services andMarkets Act 2000 (Financial Promotion Order) 2001. It is directed at persons who haveprofessional experience in matters relating to investments. The investments to which it relatesare available only to such persons and will be entered into only with such persons. BarclaysCapital - the investment banking division of Barclays Bank PLC, authorised and regulated bythe Financial Services Authority (FSA ) and member of the London Stock Exchange.BARCLAYS CAPITAL INC. IS DISTRIBUTING THIS MATERIAL IN THE UNITED STATES AND, INC O N N E CTION THEREWITH, ACCEPTS RESPONSIBILITY FOR ITS CONTENTS. ANY U.S.PERSON WISHING TO EFFECT A TRANSACTION IN ANY SECURITY DISCUSSED HEREINSHOULD DO SO ONLY BY CONTACTING A REPRESENTATIVE OF BARCLAYS CAPITAL INC. IN

THE U.S., 200 Park Avenue, New York, New York 10166.

Non-U.S. persons should contact and execute transactions through a Barclays Bank PLCbranch or affiliate in their home jurisdiction unless local regulations permit otherwise.

* Copyright Barclays Bank PLC (2002). All rights reserved. No part of this publication may bereproduced in any manner without the prior written permission of Barclays Capital. BarclaysBank PLC is registered in England No. 1026167. Registered office 54 Lombard Street, LondonEC3P 3AH.

Additional information regarding this publication will be furnished upon request.

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CONTACTS

LondonCorporates: 44 207 773 8497

Governments: 44 207 773 92035 The North ColonnadeCanary WharfLondonE14 4BB

New YorkCorporates: 212 412 2190Governments: 212 412 6810200 Park Ave5th Floor

New York, NY 10166

Tokyo81 3 5255 042015F Urbannet Otemachi Building2-2-2 OtemachiChiyoda-kuTokyo 100

Internetwww.barcap.com

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Repo and Stock Loan Transactions

Documents

Transcript of Repo and Stock Loan Transactions