FINANCIAL PRODUCTS
Securities Borrowing and Lending
Modalities, Benefits, and Conditions of Securities Borrowing and Lending.
What is Securities Borrowing and Lending?
Securities Borrowing and Lending (SBL) is a transaction where a Lender transfers securities to a Borrower for a specified period. This mechanism is often used to cover settlement failures or to facilitate short selling. At the expiration of the agreement, the Borrower returns the same amount of securities to the Lender, along with the agreed fee or interest.
Modalities
Covering Settlement Failures - Trading
- Traded in the Price Time Priority segment.
- One day period.
- Interest rates defined by market trading.
Covering Settlement Failures - Securities Lending Program
- This program offers an automated way to cover settlement failures. Loans are allocated randomly at the end of the trading day, and the borrowed securities are returned to the lender at the start of the next trading day.
- One day period.
- Significantly higher interest rates (e.g., 200% higher than rates defined by market trading).
- Possibility of setting a cap per account or instrument
Facilitating Short Selling
- Traded in the Price Time Priority segment.
- Interest rates defined by market trading.
- Agreed for a specific period beyond a single day
- Both the lender and the borrower have the right to pre-cancel the loan before the agreed term ends.
Benefits
- Securities lending provides additional yield on portfolios.
- Risk-free transactions guaranteed by BYMA
- There are no market or custody fees for the lender, making it cost-free.
- Lenders maintain economic rights, including the right to dividends, coupons, and amortizations.
Conditions
- The borrower undertakes to repay the lender the agreed-upon amount within the specified terms. BYMA reserves the right to decide and regulate the procedures to be followed for unforseen events.
- During the loan term, the lender is entitled to receive economic benefits generated by the lent securities.
- In the case of equity securities, these benefits include cash and/or stock dividends, redemptions, subscription warrants, exchange offers, among others.
- The lender loses voting and withdrawal rights during the loan term.
- Both modalities of securities loans, for settlement failures and short sale coverage, can be precancelled by either party.
- For fixed-income securities, the lender is entitled to receive interest payments, amortization, and any early redemptions by the issuer.
Maturity
For settlement failure coverage
Loans to cover settlement shortfalls must be arranged for a term of 1 day and may be renewed up to 3 business days from the settlement date of the transaction covering the loan.
For short sale coverage
The maturity is the same as that of fixed income or equity options, depending on the instrument borrowed.
