The growing importance of repo and securities lending transactions has made them impossible to ignore for anyone involved in the financial markets. Both of these markets are measured in the trillions of dollars. Indeed, despite difficult market conditions the international repo and securities lending markets continue to develop rapidly in variety and complexity. Repo continues to offer an inexpensive and efficient way to improve liquidity in the secondary markets and provide investors with better returns on their underlying collateral. The securities lending market provides borrowers with ready access to key equity and debt securities and provides lenders with a ready source of fee income.
This course will offer a start to finish discussion of the key terms of the Global Master Repurchase Agreement and the Global Master Securities Lending Agreement, as well as the agreements used in the U.S. domestic market. Attendees will be taken through the operative terms of the agreements, events of default, and the termination and close-out provisions. In addition, the role of custodians and agents will be explored, including a detailed discussion of the tri-party agreements that are used to facilitate these discussions. Other key concerns will also be discussed such as the role of the Cross Product Master Agreement, legal opinions, tax provisions and sovereign immunity.
By attending this course you will:
- Assess agency transactions, the risks and regulations involved
- Outline the key business, credit and legal risks and issues
- Review how tri-party repo works and its advantages
- Explore evolving tax issues both in Europe and the US
- Understand accounting for repo and securities lending transactions
Day 1 - Repos
Introduction and overview of repo
- The mechanics of repo
- Principle uses
- Terminology
- Valuation, initial margin, margin maintenance, substitution and custody
- Legal vs economic character
- Comparison with secured borrowing and securities lending
Risks of Repos
- Counterparty Risk
- Legal Risk
- Operational Risk
- Systemic Risk
Case Study - Lehman's Repo 105s
Confirming Repos
- Key terms
- Confirmation process
- Role of automation & custodians
Global Master Repurchase Agreement
- Structure of the GMRA
- Operative Terms
- Events of Default
- Netting and GMRA
- Annexes
Case Study - Review of Schedules and Annexes
Understanding the Master Repurchase Agreement (New York law)
- Comparison with the GMRA
- Operative Terms
- Events of Default and Close Out
- Annexes
Tri-party repo
- Origins of tri-party
- How tri-party repo works
- Tri-party services
- Advantages of tri-party
- Problems with tri-party
Negotiating the Tri-Party Repo Agreements
- BONY versus Chase Agreement
- Key Terms
Key Accounting and Tax Issues
Central Bank Use of Repo & Other Issues
Day 2 - Securities Lending
Introduction and overview of Securities Lending
- The mechanics of Securities Lending
- Principle uses
- Terminology
- Valuation, initial margin, margin maintenance, substitution and custody
Unique Risks of Securities Lending
- Counterparty Risk
- Legal Risk
- Operational Risk
- Systemic Risk
Case Study - AIG's Losses on Securities Lending
Confirming Securities Lending Transactions
- Key terms
- Confirmation process
- Role of automation & custodians
Global Master Securities Lending Agreement
- Structure of the GMSLA
- Operative Terms
- Margining - cash versus non-cash collateral
- Events of Default
- Netting and GMSLA
- Mini Close-out
Understanding the Master Securities Loan Agreement (New York law)
- Comparison with the GMSLA
- Operative Terms
- Events of Default and Close Out
Tri-party Arrangements
- Origins of tri-party
- How tri-party works
- Tri-party services
- Advantages of tri-party
- Problems with tri-party
Cross Product Master Agreement
- Purpose and Development
- Use with Repo and Securities Lending
- Cross Affiliate Version
- Key Issues
Key Accounting and Tax Issues
Legal Opinions
- Key Issues in Legal Opinion
- Special Repo and Securities Lending Concerns
Other Issues
- Sovereign Immunity
- Contractual Currency
- Impossibility
- Governing Law
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Christian Johnson
Christian has also worked as a consultant on finance documentation for ABN AMRO, Wachovia Bank and several of the Federal Home Loan Banks and other large financial institutions and insurance companies.
He has been teaching law courses on finance, derivatives and tax at Loyola Law School and the University Of Utah College Of Law for 15 years. He has published four books (three co-authored with Paul Harding) and over 36 articles on these topics. His four books on OTC derivatives, securities lending and Repo documentation have become standard texts in the area. He has spoken on finance and derivatives at such institutions as the International Monetary Fund, Osgoode Law School, the National University of Singapore, the Federal Reserve Bank of Chicago, the Federal Home Loan Bank System, the American Bar Association and the Futures Industry Association.
Prior to teaching at law school, he was an associate for Milbank, Tweed, Hadley & McCloy in New York and Mayer, Brown, Rowe & Maw in Chicago.
Christian attended Columbia Law School and was the executive editor of the Columbia Law Review and a Harlan Fiske Stone Scholar. Prior to law school, he received his BA and Masters in Accounting from the University of Utah and was qualified as a C.P.A. with Pricewaterhouse.
Interested in holding this course in-house? Please fill out your details and a member of our team will be in touch with more information.
This course has now expired please email us to find out when the course will next be running.