Securities Lending and Borrowing Service
Securities lending and borrowing (SLB) refers to transactions in which an institution holding securities for the long term lends the securities to another party in exchange for a fee. Borrowers are institutions that need securities, either to avoid settlement failure, or for their investment strategies.
Market participants and eligible securities
Lenders lend securities they own in exchange for a fee. Major lenders are pension funds, asset management companies, banks, insurance companies, and securities companies.
Borrowers seek to earn returns by using the borrowed securities. Major borrowers are securities companies, hedge funds, and asset management companies.
Intermediaries handle the intermediation, arrangement and execution of SLB transactions; delivery and return of loan securities; collateral management related to SLB transactions; and management of rights arising from loaned securities. Major intermediaries are KSD, investment brokerage companies, and Korea Securities Finance Corporation (KSFC).
- SLB-eligible securities
SLB-eligible securities include listed stocks, listed bonds, exchange-traded fund (ETF), and Korea depository receipts (KDR).
- Execution of SLB transaction
Borrowers and lenders apply for transactions by entering the name and quantity of a security, and the fee rate into the SAFE+ system. When the transaction details from the borrower and the lender are matched, the transaction is executed. The delivery of loan securities and collateral should be made simultaneously.
- Submission of collateral
A borrower is required to submit collateral to KSD or lender. Once the submission is confirmed, the loan securities will be transferred from the borrower's account to the lender's account in the participant account book.
At maturity, securities on loan must be returned in the same kind and quantity. The borrower can return the loaned securities at any time during the loan term.
Benefits of the SLB service
- Competitive edge as first provider of SLB services in Korean market
KSD has an extensive network of borrowers and lenders that enabled the smooth facilitation of SLB transactions.
- Risk elimination though a robust risk management system
KSD manages risk through mark-to-market, margin calls, and evaluation of participants' credit ratings, while guaranteeing the safety of transactions.
- Professional rights management services as a CSD
KSD provides accurate management of rights arising from loaned securities, as a CSD with centralized issuers' information.