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UK financial trade associations launch securities lending guide

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A group of UK financial trade associations has published a range of educational materials, designed to enhance pension fund trustees’ understanding of the securities lending market.

The documents include an introductory guide and checklist for investors contemplating starting securities lending programmes, as well as a disclosure code of guidance for securities lending agents.

The materials were jointly developed at the instigation of the Bank of England’s Securities Lending and Repo Committee and are endorsed by the Association of British Insurers, British Bankers Association, ICMA’s European Repo Council, Investment Management Association, International Securities Lending Association, Local Authority Pension Fund Forum, National Association of Pension Funds, as well as securities services consultant Thomas Murray.

The group worked closely with the Financial Services Authority, Bank of England, HM Treasury and the Pensions Regulator.

Joyce Martindale, representing the National Association of Pension Funds and chair of the Securities Lending and Repo Committee working group, says: “The securities lending guidance should be very beneficial in helping pension fund trustees enhance their awareness of this specialised investment-related activity and decide whether to participate. The documents complement the broader range of materials already in existence aimed at educating investors on securities lending.”

Securities lending can generate incremental returns for investors on portfolios of shares and bonds, while contributing also to the promotion of efficient financial markets. Investors lend securities to borrowers such as market makers and investment banks who pay the lender a fee. Loans are secured with collateral and business is conducted under well-developed master agreements.

The total value of securities on loan globally is estimated at around USD2.5trn and pension funds generate an estimated USD800m of revenue annually from lending their securities.

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