Repo vs Securities Lending
There are important differences that should be acknowledged between a repo and securities lending. The main ones are:
- collateral is agreed on a deal by deal basis in a repo while collateral is managed as a portfolio in the case of securities lending
- price tiering is limited in the case of repos, while price is a sensitive issue with respect to the counterparty in securities transactions
The other major difference that should be noted concerns the legal documentation. Outside the US, repo trades are governed by the GMRA, while securities lending regulations fall under the
GMSLA and the OSLA. Within the US, repo trades are documented under the TBMA repo document and stock loan under the SLA document. More on these documents can be found under Legal Issues.
The securities lending documentation says that in the event of default, the defaulting party undertakes to pay all expenses and costs which arise (GMSLA 2000). However, in the case of repos and buy/sell backs, the GMRA 2000 says that neither party may claim any sum of consequential loss or damage in the event of a failure by the other party. Hence in this respect, the losses maybe different between securities lending and repos.
