Solvency Ii Repurchase Agreement

The main objective is to address the potential situation in which the borrower does not return ETF securities. It is therefore important to know the creditworthiness of the borrower in order to avoid default. But that is not all, it is also necessary to assess the quality and liquidity of the guarantees provided. In the event of a failure, the ETF expects the performance to remain the same as before. This assumes that the security is of the same quality and liquidity as the securities it has transferred. In fact, it goes even further today and the phenomenon of over-protection is occurring. This means that the borrowed securities are actually more than 100% guaranteed. As a result, the value of the assets that make up the security is greater than the value of the transferred securities. Securities lending and retirement operations are effective portfolio management techniques. These techniques are mainly used by management companies of collective investment institutes. The advantage of these techniques is that their benefits are indirectly converted into benefits for participants. Securities lending and pensions are recurring transactions in the financial market, for example.

B in group investments. However, many participants are not aware of their relevance and may be different in terms of investments. All of this necessities analysis. In order to reduce counterparty risk, investment fund managers can take several steps. First, it is necessary to implement the criteria for selecting counterparties. That is, to ensure that the counterparty meets the minimum payment requirements. In practice, termination clauses are included if the solvency does not meet these requirements during the contract. Secondly, it is also necessary to use criteria for the selection of guarantees.

The aim is to guarantee the quality of the assets as collateral and their liquidity. This is a problem when there is massive redemption by the participants. When the securities are lent, the fund must have sufficient liquidity to pay them all at the same time. It is therefore essential to at least guarantee the equivalence of liquidity between collateral and borrowed securities. As we have seen, both securities lending and pension transactions are agreements in which securities are exchanged between two parties. However, there is a difference in legal ownership. With regard to the lending of securities, the political rights to the securities are transferred. The lender could only exercise its right to vote if it had expressly decided otherwise in the contract.

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