The Banking and Corporate Finance Training Specialist

Repo’s and Securities Lending

This course is presented in London on:

14 September

Course Overview

This Repo and Securities Lending course provides full coverage of the important aspects of

repo trading and the pertinent issues involved in Securities Lending. It is relevant for in-house lawyers and private practice lawyers alike as well as bankers and repo traders

involved in anything from the day to day business as usual plain vanilla repos to the more complex heavily negotiated repo trades involving structured securities or unusual assets. This course will also be relevant to the Operations and Documentation teams involved in

repo transactions from time to time, structurers, compliance personnel as well as accountants who advise clients on repo trades.

The first part of this course sets the scene by giving an introduction to repos; the development of the repo market in Europe, the legal and economic characteristics of repos,

the definitions and terminology 'jargon' that is commonly used in the repo market and the uses and benefits of repos. We then go through the various types of repo products in the

market and discuss the risks, mitigants and distinguishing characteristics of repos. The second part of the course covers the architecture of the GMRA documentation

framework. Here we will go through the key provisions of the GMRA and discuss topical issues relating to and affecting the repo market. We will go on to discuss the 3 levels of

activity in the repo market and go through an analysis of repos in the US market. This will be followed by a detailed step by step analysis of how a repo trade is negotiated and executed. We then cover the pertinent issues in the regulation of the repo market in

Europe.

The third part of the course will cover an overview of Securities Lending; what it is, the reasons for it, the parties involved in it and the advantages and disadvantages for using it. We will discuss the legal structure and the various risks involved in Securities Lending. We

will then go on to analyse the GMSLA documentation and the key provisions. We will undertake an analysis of the relevant case law in this area following which we will discuss

the regulations effecting Securities Lending and the upcoming regulatory changes and considerations to be aware of.

Please note that the sections on regulations are subject to change depending on the time of the year this training course is delivered as per the regulations and guidance that are

published from time to time.

Complimentary materials including content filled presentation slides, the GMRA and relevant articles will be provided to all participants.

Course Overview

Course Content

INTRODUCTION: REPOS OVERVIEW

The Development of the Repo Market

The Legal and Economic Characteristics of Repos Definition of a Repo

“True Sale” title transfer Enforcement Substitution

Similarities to secured loans Cashflows

Definitions and Terminology Used: Haircuts Manufactured Payments

Equivalent Securities Purchased Securities

Purchase and Repurchase Prices Income Payments Repo Rates

Voting Rights Fungibility issues

Uses of Repos: 4 basic functions:

Safe Investment

Long positions Short positions

Yield enhancement Secured lending with haircut provisions

Monetary policy instruments – Central Banks Benefits of Repos:

For lenders

For borrowers To the financial markets

Types of Securities used in Repos: Government bonds High grade bonds

Credit Repos: Private sector assets Corporate bonds

ABS – Asset Backed Securities MBS – Morgage Backed Securities Covered Bonds

CPs – Commercial Paper Bank Loans

Mortgage Loans (in the US) Gold

Participants in the Repo Market

Buyer's side Seller's side

Types of Repos and similar transactions Classic Repos Agency Repos

GC Repos Term Repos

On-demand Repos or Open Repos Forward Repos

Reverse Repos

Tri-party Repos

Synthetic Repos Cross-currency Repos

Credit Repos Floating-rate Repos Bonds trading 'on special'

Securities Lending Buy/Sell- Backs

Distinguishing Characteristics of Repos Risks in a Repo

Counterparty credit risks

Collateral risks Transferability

Collateral Management Legal Certainty

Mitigation of Counterparty Credit Risks

Margin Ratio Margin Collateral

Set off

REPO DOCUMENTATION Introduction

The GMRA Reasons for the GMRA

Recharacterisation risks Margining Event of Default Procedures

Netting Rights Other Risk Mitigation measures

Basel III Capital Requirements Operational Benefits Harmonisation

Use in Structured Transactions Legal Opinions

Architecture of the GMRA documentation Versions:

The 1992 original version

The 1995 version The 2000 version

The 2011 version Annexes

Supplemental Terms or Conditions

Equity Annex Bills of Exchange Annex

Agency Annex Buy/Sell-Back Annex

Confirmation

Market Protocols and Guidelines 2011 GMRA Protocol

ICMA ERC Guide July 2015 Securities Borrowing and Lending Code of Guidance ESMA Guidelines on repo and reverse repo agreements for UCIT Funds

Course Content

The GMRA Key Provisions and Considerations:

Collateral Selection Credit Risk

Valuations Liquidity Risk Adjustments

Margining Events of Default

Consequences of Failure to Deliver: at start of a repo at end of a repo

Standard Events of Default Default Notices

Close-out: 3 stages Valuation Procedures Consequential Losses

Negative Repo Rates Circumstances when this occurs

Definition and illustration of a Negative Repo Rate situation Problems caused by Negative Repo Rates Repo Rate Indices

STOXX GC Pooling Indices The GCF Repo Index

Gov PX The RepoFunds Rate The Repo Overnight Index Average (RONIA)

Accounting Treatment of Repos Balance sheet treatment not aligned with legal form

Lehman Brothers' Repo 105 MF Global's repo to maturity under US GAAP IFRS

Regulatory Reforms under consideration Short-selling

What is it? Essential functions

Risks and costs of short-selling Uncovered short-selling and market abuse EU Short Selling Regulations

Shadow Banking What is shadow banking?

Reasons why repos are viewed as riskier by regulators Risk mitigants

The Central Clearing Counterparties (CCPs)

The functions of the CCPs Benefits of using CCPs

Drawbacks of using CCPs The Principal CCPs in Europe Repo trading systems

Pro-cyclicality What is it?

Gorton-Metrick Hypothesis Run on the repo market and the 2007-8 financial crisis

Securitised banking

Course Content

CSD Regulation (CSDR)

Application Exemptions

Benefits Impact on Eurozone Repo Market

Levels of Activity in the European Repo Market Trading – How repos are trades are negotiated and executed

Direct trading Automated Trades ATSs

The ATSs operating in Europe Clearing – Netting by repo parties

Uncleared trades Bilateral cleared trades Multilaterally cleared trades

The Principal CCPs in Europe Collateral Management – Delivery and Maintenance

Bilateral Tri-party The Principal Tri-party Agents in Europe

Repos in the US

The Repo Market in the US Main Participants Assets used in US Repos

The Legal and Economic Characteristics Main distinctions of US Repos

Term limitation Bankruptcy code section 559 safe habor Back-up Security Interest

US Repo Documentation: The SIFMA MRA

Key Provisions Margin maintenance

Income Payments Segregation Representations

Events of default Tax Event

Confirmation Additional Provisions to add to SIFMA MRA

Step by Step Process of How a Repo Trade is Done Establish identity of counterparty – Legal Entity Identifier (LEI)

Establish whether parties dealing as principal or agent Key economic terms and post-trade checks How to quote repo rate

How to work out Purchase Price – dirty price inclusive of haircut Fixing Purchase and Repurchase Dates

For non-forward repos – CSDR T+2 Requirement For forward repos – 2 Methods:

Method 1 – Constant Date Method

Method 2 – Sequential Date Method

Course Content

For floating-rate repos For open repos

Allocating collateral and agreeing pricing

Negotiating rights of substitution Interest rates and charges on late payments

Post-trade verification process Confirmation – The essential terms

Affirmation – if necessary Partial Delivery – Exercising Mini-Close Outs Dealing with Negative Repo Rate issues

Reinvestment rate on Manufactured Payments Interest on Cash Margin

Calculating Floating-rate Repo interest Method 1 – Illustration Method 2 - Illustration

Calculating Open Repo interest Margining:

Fixing Haircut or Initial Margin Calculating Margin Calls Calculating Net Exposure

The Price used to Value Collateral Margin Thresholds

Deadlines for Margin Calls and Delivery Applying haircuts to Margin Securities Interest Payments on Cash Margin

“Repricing” and Net Exposures Margining Forward Repos

Consequences of non-delivery of Margin Margin Parameters Manufactured Payments

Resetting Coupon on Floating Rate Collateral Exercise of Substitution Rights

Termination Notices Amendments Post-Trade

REGULATION OF THE REPO MARKET IN EUROPE EU Financial Collateral Directive

Short Selling Regulations Capital Requirements Directive implementing the Basel III Regime EMIR

MiFID and MiFIR Bank Resolution and Recovery Directive

CSD Regulation Securities Law Directive

Crisis Management Directive Financial Stability Board's considerations on the 'shadow banking' issues

SECURITIES LENDING OVERVIEW What is Securities Lending?

Reasons for Securities Lending The Parties Involved

Case law: AP-Fonden v Bank of New York Mellon SA/NV & Ors

Benefits of Securities Lending

Disadvantages of Securities Lending

Course Content

Legal Structure Title Transfers Voting Rights

Lender's risk exposure Risks

Legal Risks Capacity

Netting/Set-off Opinions Recharacterisation Governing Law

Insolvency Laws Regulatory Risks

Change of law Mitigants in GMSLA Short selling

Credit Risks Counterparty

Collateralisation CCPs

Market Risks

Price fluctuations Pricing considerations

DOCUMENTATION The ISLA

The Global Master Securities Lending Agreement (GMSLA) – versions Guidances:

SLRC – Securities Borrowing & Lending Code of Guidance ISLA EU Agency Lending Best Practice Paper UK Agency Lending Code of Guidance

Checklists for Lenders Key Provisions

Capacities of the Parties Title Transfer Payments and Rights

Events of Default Case law: Savings Bank of the Russian Federation v Refco Securities LLC

REGULATION OF THE STOCK LENDING MARKET IN EUROPE The Stock Exchange Rules

RAO under FSMA The Disclosure and Transparency Rules

Financial Collateral Arrangements Shadow Banking concerns

FSB Recommendations Proposals to regulate Securities Financing Transactions (SFTs)

Pension Protection Fund

Course Content

http://redcliffetraining.co.uk enquiries@redcliffetraining.co.uk

+44 (0)20 7387 4484

9:30-17:00

London

£695+VAT (£834)

Discounts available for multiple participants:

3-4 participants: 15% discount per participant 5-6 participants: 20% discount per participant

7-8 participants: 25% discount per participant 9 or more participants: 30% discount per participant

Delivering this course in-house for you to a number of participants could be very

cost effective.