Securities Lending & Borrowing (SLB) is a contract where one party who holds the securities for a relatively long period of time lends his securities to the other party, and agrees to receive the loaned securities, or vice versa.
How does it Work?
In SLB, the borrower uses borrowed securities for fail cover in settlement and for various portfolio strategies and the lender earns fees from the borrower by lending his securities. The ownership of the loaned securities passes from the lender to the borrower, but the lender is entitled to economic rights (such as dividends and interest deriving from the loaned securities) from the borrower.
Participants
KSD as an intermediary for SBL provides services including system operation, trade intermediation, collateral management etc.
Borrowers (usually domestic and foreign securities companies)
Eligible securities
Eligible securities are stocks listed in KSE(Korea Stock Exchange) or registered with KOSDAQ(Korea Securities Dealers Automated Quotations) and bonds eligible for deposit at KSD. However, stocks that are put on a list for supervision or watch, bonds rated below BBB and equity-linked bonds such as CBs and BWs are excluded.
Participation
To become a participant, the party needs to submit necessary application forms for participation and account opening to KSD. If the authorization is made by KSD after KSD receives necessary documents for participation in SBL, the party becomes a participant and he or she can apply for borrowing or lending securities at any time by entering deal conditions such as issue type, quantity and fee rate into KSD SBL system.
Types of SBL transactions
Settlement coverage transaction
- T+2 transaction used to avoid settlement fails associated with transactions on the securities market.
- KSD is the pledgee for submitted collateral.
Bid-offer transaction
- It is most favored by domestic institutions.
- KSD is the pledgee for submitted collateral.
Arranged Transaction It is most favored by domestic institutions.
- KSD is the pledgee for submitted collateral.
- Transaction in which trade-counterparts are pre-determined and conditions including issue type, quantity and fee rate are determined through negotiation between trade-counterparts.
- KSD is the pledgee for submitted collateral.
Customized transaction
- All conditions for this transaction including issue type, quantity, fee rate and collateral level are determined through negotiation between trade-counterparts.
- The lender is the pledgee for submitted collateral.
What are the Benefits?
To enhance the liquidity and minimize the risk of settlement failures on the securities market, SLB service was introduced. KSD guarantees efficient and secure SLB transactions with our unique positions and services. AS a leading SLB intermediary in Korea, LSD has access to a wide range of lenders and borrowers, thus reducing time and cost of searching for available securities and generating a high level of trade volume. Also, by performing mark-to-market, margin call and periodically evaluating participants’ credit status, we maintain secure SBL transactions and reduce risks.
