Securities Lending 301: Understanding Collateral Management and its Risks (Course)

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Course Overview
The Collateral Management course is an intermediate-level course designed for individuals with an understanding of global securities lending transactions and markets. Participants will gain a deeper understanding of risk and the securities lending collateral management process for both cash and noncash collateral.

Who will benefit?
Securities lending and market risk managers, securities desk traders, agent, and fund representatives with at least two years of experience in trading, investment, operational, and legal/regulatory experience will benefit from taking this course.

You will:

• Understand the major reinvestment instruments used in the U.S. market.
  
• Learn about triparty arrangements and how they are used in both repo and bonds-borrowed arrangements.
  
• Identify the sources of risk in both noncash and cash collateral reinvestments.
  
• Understand pooling: advantages and disadvantages, legal issues, types of vehicles available.
  
• Learn how various interest rate environments affect reinvestment strategy.

The course will cover the following topics;

Module 1: Fundamentals of Interest Rates

• Conversion of discounted interest to simple interest equivalent.
  
• Conversion from actual-over-360 to simple interest.
  
• The calculation of 30-over-360 and the instruments that normally employ this type of interest.
  
• The calculation of interest on U.S. treasury notes and bonds.
  
• The difference between duration and maturity.
  
• Description of how the prices of debt instruments change with changes in interest rates.
  
• The relative change in prices between short-term and long-term instruments for a given change in interest rates.
  
• The concepts of positive, negative, and flat yield curves.
  
• The basic investment strategies for positive, negative, and flat yield curves.

Module 2: Types of Investment Instruments

This module describes the characteristics of each of the following types of investment instruments, including:

• Commercial paper (CP).
  
• Mortgage-backed securities.
  
• Participation certificates (PCs).
  
• Real-estate mortgage investment conduit (REMICs) and collateralized mortgage obligation (CMO).
  
• Sequential pay classes.
  
• Interest only tranches (IOs) and principal only tranches (POs).
  
• Planned amortization class (PACs) and targeted amortization class (TACs).
  
• Z tranches.
  
• Floaters, super floaters, and inverse floaters.
  
• Asset-backed securities.
  
• Asset-backed commercial paper.
  
• Time deposits (TD) and Certificates of deposit (CD).
  
• Funding agreements.
  
• Master notes.
  
• Medium-term notes.
  
• Extendible commercial notes.
  
• Repurchase agreements (REPO).

Module 3: Collateral Risk and Its Management

• The principal risks involved in the reinvestment of cash collateral.
  
• The principal technique or techniques to control each risk.
  
• System considerations involved when implementing customer-requested investment limitations.

Module 4: Triparty Arrangements

• The principal phases of a triparty repo and triparty securities loan.
  
• The triparty processing that occurs, for each phase.
  
• Major risks incurred by using triparty agreements.

Module 5: Pooling

• Advantages and disadvantages of pooling.
  
• Major laws controlling pooling arrangements.
  
• How to handle collateral if combining money and doing a repo for more than one customer.
  
• The rules surrounding bulk purchases of investment instruments such as commercial paper (CP).
  
• Summary of Rule 3(c)7 of the '40 Act.

Module 6: Alternative Collateral Arrangements

• Reinvestment options for third-party lending arrangements and the issues that must be considered in each option.
  
• Issues that must be addressed with the customer when they wish to do their own reinvestment of the cash collateral.
  
• Common issues that must be considered before lending securities outside of the U.S.

Module 7: Beneficial Owners and Collateral

• The importance of being familiar with a customer's legal, regulatory, and other restrictions surrounding reinvestment.
  
• Details needed to properly document reinvestment options in the areas of credit, concentration limits, maturities, and repo collateral.
  
• Issues the customer should be prepared to address in the event of an investment downgrade.
  
• Ways to help customers select reinvestment guidelines.
  
• Actions one should take in responding to competitors quoting better returns to customers.

Attendees will receive a full set of materials, including:

• Participant Manual.
  
• Copies of presentation slides/overheads.
  
• Any current-issues handouts from the instructor.

Who Will Be Leading The Workshop?
The faculty will be a rotating pool of professionals drawn from the securities lending industry and the Committee on Securities Lending. These individuals have extensive working knowledge of the industry and day-to-day responsibility for lending activity in this ever-changing environment.

Registration Fee
RMA members $750
Nonmembers $995

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