SD-11.8 — Securities Finance & Funding

Business Domain: BD-11 Treasury, Cash & Collateral (Middle office) · Applies: BOTH

Purpose

Runs the firm’s funding and financing book — the use of repo, securities lending and credit facilities to fund the firm’s investing, and the securities-lending programme that lends the funds’ assets for incremental return. SD-11.8 owns the securities-finance capability on the principal side: the decision to run a securities-lending programme and its design, the operating-model choice (agent / principal / direct), the funding book and its maturity ladder, the choice of funding source, prime-brokerage funding, the negotiation and execution of the firm’s own repo and securities-financing trades, the oversight of the lending agent, and the reinvestment of the cash collateral the programme generates. There is no separate front-office securities-financing desk in the model — the financing trade is treasury’s act of running the funding book. SD-11.8 is not the operational loan book — loan open, recall and return processing, per-loan collateral and lending-revenue accounting are SD-12.13 Securities Lending Operations — and it is not the collateral-and-margin cycle against the financing, which is SD-11.4.

Service Operations

Run the funding book — manage the firm’s use of repo, securities lending and credit lines as funding, and the maturity ladder of that funding.
Choose the funding source — decide the cheapest and most appropriate source of funding for a given need, across the available instruments.
Negotiate and execute financing trades — where the firm transacts a repo, reverse repo, stock loan or stock borrow direct, negotiate the counterparty, rate, fee and term and execute the trade; borrowing to cover a short or a settlement fail is a funding decision owned here.
Operate the securities-lending programme — set the programme design, the lendable-pool policy and the operating model, lend the funds’ assets for incremental return, and set the borrower and reinvestment-risk policy — directly or through a lending agent.
Reinvest cash collateral — manage the reinvestment of the cash collateral the securities-lending programme generates, within the reinvestment-risk policy.
Manage prime-brokerage funding — manage the financing relationship with prime brokers, including margin financing and the cost and terms of leverage.
Oversee the lending agent — where securities lending is run through an agent, oversee the agent’s performance and the programme’s risk.

Inputs and outputs

Inputs: the funding need from SD-11.2 Liquidity Management; the firm’s lendable inventory from the book of record (SD-12.1); the operational loan-book position from SD-12.13; the reinvestment-risk policy; prime-broker terms.
Outputs: the funding book, the securities-lending programme position and the financing cost — consumed by SD-11.2, SD-11.5 Collateral Optimisation & Inventory Management (financing and collateral are linked), SD-07.3 Liquidity Risk Management, and treasury governance.

Entities

Consumes: E-04 Holding / Position (book = ibor — the live IBOR lendable inventory), E-01 Legal Entity (borrowers, prime brokers, lending agents), E-05 Transaction (the financing trades); the SD-11.2 funding need; the SD-12.1 firm’s lendable inventory from the book of record; the SD-12.13 operational loan-book position.
Owns: none as a master entity — the funding-book facilities are a Credit Facility entity candidate (shared with SD-11.6); the securities-lending positions are recorded as E-04 Holding / Position.

Standards

The securities-lending best-practice frameworks — the industry and GFOA guidance.
The repo and securities-lending master agreements — the GMRA and GMSLA.
SEC Rule 2a-7 and money-market conventions for cash-collateral reinvestment.

Open extensions

A Credit Facility entity, shared with SD-11.6.
The securities-lending-programme and cash-collateral-reinvestment sub-model.
The Service-Operation-level input/output contracts.