2021 Q2 Lending and Collateral Q&A
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Repo Haircuts and Economic Capital: a Theory of Repo Pricing Wujiang Lou1 1St Draft February 2016; Updated June, 2020
Repo Haircuts and Economic Capital: A Theory of Repo Pricing Wujiang Lou1 1st draft February 2016; Updated June, 2020 Abstract A repurchase agreement lets investors borrow cash to buy securities. Financier only lends to securities’ market value after a haircut and charges interest. Repo pricing is characterized with its puzzling dual pricing measures: repo haircut and repo spread. This article develops a repo haircut model by designing haircuts to achieve high credit criteria, and identifies economic capital for repo’s default risk as the main driver of repo pricing. A simple repo spread formula is obtained that relates spread to haircuts negative linearly. An investor wishing to minimize all-in funding cost can settle at an optimal combination of haircut and repo rate. The model empirically reproduces repo haircut hikes concerning asset backed securities during the financial crisis. It explains tri-party and bilateral repo haircut differences, quantifies shortening tenor’s risk reduction effect, and sets a limit on excess liquidity intermediating dealers can extract between money market funds and hedge funds. Keywords: repo haircut model, repo pricing, repo spread, repo formula, repo pricing puzzle. JEL Classification: G23, G24, G33 A repurchase agreement (repo) is an everyday securities financing tool that lets investors borrow cash to fund the purchase or carry of securities by using the securities as collateral. In its typical transaction form, the borrower of cash or seller sells a security to the lender at an initial purchase price and agrees to purchase it back at a predetermined repurchase price on a future date. On the repo maturity date T, the lender (or the buyer) sells the security back to the borrower. -
Asx Clear – Acceptable Collateral List 28
et6 ASX CLEAR – ACCEPTABLE COLLATERAL LIST Effective from 20 September 2021 APPROVED SECURITIES AND COVER Subject to approval and on such conditions as ASX Clear may determine from time to time, the following may be provided in respect of margin: Cover provided in Instrument Approved Cover Valuation Haircut respect of Initial Margin Cash Cover AUD Cash N/A Additional Initial Margin Specific Cover N/A Cash S&P/ASX 200 Securities Tiered Initial Margin Equities ETFs Tiered Notes to the table . All securities in the table are classified as Unrestricted (accepted as general Collateral and specific cover); . Specific cover only securities are not included in the table. Any securities is acceptable as specific cover, with the exception of ASX securities as well as Participant issued or Parent/associated entity issued securities lodged against a House Account; . Haircut refers to the percentage discount applied to the market value of securities during collateral valuation. ASX Code Security Name Haircut A2M The A2 Milk Company Limited 30% AAA Betashares Australian High Interest Cash ETF 15% ABC Adelaide Brighton Ltd 30% ABP Abacus Property Group 30% AGL AGL Energy Limited 20% AIA Auckland International Airport Limited 30% ALD Ampol Limited 30% ALL Aristocrat Leisure Ltd 30% ALQ ALS Limited 30% ALU Altium Limited 30% ALX Atlas Arteria Limited 30% AMC Amcor Ltd 15% AMP AMP Ltd 20% ANN Ansell Ltd 30% ANZ Australia & New Zealand Banking Group Ltd 20% © 2021 ASX Limited ABN 98 008 624 691 1/7 ASX Code Security Name Haircut APA APA Group 15% APE AP -
Mortgage-Backed Securities & Collateralized Mortgage Obligations
Mortgage-backed Securities & Collateralized Mortgage Obligations: Prudent CRA INVESTMENT Opportunities by Andrew Kelman,Director, National Business Development M Securities Sales and Trading Group, Freddie Mac Mortgage-backed securities (MBS) have Here is how MBSs work. Lenders because of their stronger guarantees, become a popular vehicle for finan- originate mortgages and provide better liquidity and more favorable cial institutions looking for investment groups of similar mortgage loans to capital treatment. Accordingly, this opportunities in their communities. organizations like Freddie Mac and article will focus on agency MBSs. CRA officers and bank investment of- Fannie Mae, which then securitize The agency MBS issuer or servicer ficers appreciate the return and safety them. Originators use the cash they collects monthly payments from that MBSs provide and they are widely receive to provide additional mort- homeowners and “passes through” the available compared to other qualified gages in their communities. The re- principal and interest to investors. investments. sulting MBSs carry a guarantee of Thus, these pools are known as mort- Mortgage securities play a crucial timely payment of principal and inter- gage pass-throughs or participation role in housing finance in the U.S., est to the investor and are further certificates (PCs). Most MBSs are making financing available to home backed by the mortgaged properties backed by 30-year fixed-rate mort- buyers at lower costs and ensuring that themselves. Ginnie Mae securities are gages, but they can also be backed by funds are available throughout the backed by the full faith and credit of shorter-term fixed-rate mortgages or country. The MBS market is enormous the U.S. -
Markets Committee Central Bank Collateral Frameworks and Practices
Markets Committee Central bank collateral frameworks and practices A report by a Study Group established by the Markets Committee This Study Group was chaired by Guy Debelle, Assistant Governor of the Reserve Bank of Australia March 2013 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2013. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 92-9131-926-0 (print) ISBN 92-9197-926-0 (online) Preface In July 2012, the Markets Committee established a Study Group to take stock of how collateral frameworks and practices compare across central banks and the key changes they have undergone since mid-2007. This initiative followed from the fact that, in the light of recent experience with market stress and other underlying changes in the financial landscape, many central banks have re-examined and adapted their collateral policies. It is also a natural extension of the Committee’s previous work on central bank monetary policy and operating frameworks. The Study Group was chaired by Guy Debelle, Assistant Governor of the Reserve Bank of Australia. The Group completed an interim report for review by the Markets Committee in November 2012. The finalised report was presented to central bank Governors of the Global Economy Meeting in early March 2013. The subject matter of this study is of core relevance to central banking. I believe the report could become a reference piece for those who are interested in central bank liquidity operations in different jurisdictions. Moreover, given the growing attention focused on collateral-related issues in the broader financial system, this report, which covers one specific area of collateral practices, could also serve as factual input to the wider debate. -
Changes to DTC Collateral Haircuts
Important Notice The Depository Trust Company B #: 14411-20 Date: December 14, 2020 To: All Participants Category: Settlement From: DTC Risk Management Attention: Settlement Manager/Managing Director/Cashier Subject: Changes to DTC Collateral Haircuts Beginning February 5, 2021, for Settlement Date February 8, 2021, DTC will implement the following changes to modify the collateral value for certain securities, which may affect the value of positions applied to the Collateral Monitor: 1. Securities held as Net Additions in Participant accounts that are issued by any of the issuer banks listed in Table 1 in Appendix A to this Important Notice will be given a 100% haircut and assigned no collateral value. This change is being made to align with provisions of the joint DTC and NSCC committed 364-day line-of-credit facility with a consortium of banks (“LOC Agreement”), as described in greater detail in Appendix A below. 2. United States Agencies and GSE securities that are not rated or that are rated below Aa2/AA will receive a 100% haircut (Appendix B includes the current list of eligible collateral). 3. Zero-coupon United States treasury securities with maturities up to two years will receive a haircut of 2% compared to the current haircut of 5%. This change will provide Participants with additional collateral value for these securities at DTC (Appendix C includes the current list of eligible collateral). 4. Securities with no active market prices will receive a 100% haircut. This will apply to new securities during the initial issuance stage and to active securities where DTC has not received a vendor price the prior day (Appendix C includes the current list of eligible collateral). -
Secondary Mortgage Market
8-6 Legal Considerations - Real Estate Contracts - Financing Basic Appraisal Principles Other Sources of Funds Pension Funds and Insurance Companies Pension funds and insurance companies have recently had such growth that they have been looking for new outlets for their investments. They manage huge sums of money, and traditionally have invested in ultra-conservative instruments, such as government bonds. However, the booming economy of the 1990s, and corresponding budget surpluses for the federal government, left a shortage of treasury securities for these companies to buy. They had to find other secure investments, such as mortgages, to invest their assets. The higher yields available with Mortgage Backed Securities were also a plus. The typical mortgage- backed security will carry an interest rate of 1.00% or more above a government security. Pension funds and insurance companies will also provide direct funding for larger commercial and development loans, but will rarely loan for individual home mortgages. Pension funds are regulated by the Employee Retirement Income Security Act (1974). Secondary Mortgage Market The secondary mortgage market buys and sells mortgages created in the primary mortgage market (the link to Wall Street). A valid mortgage is always assignable by the mortgagee, allowing assignment or sale of the rights in the mortgage to another. The mortgage company can sell the loan, the servicing, or both. If just the loan is sold without the servicing, the original lender will continue to collect payments, and the borrower will never know the loan was sold. If the lender sells the servicing, the company collecting the payments will change, but the terms of the loan will stay the same. -
{670031-4} 1 Collateral Assignment of Leases And
COLLATERAL ASSIGNMENT OF LEASES AND RENTS THIS COLLATERAL ASSIGNMENT OF LEASES AND RENTS (this “Assignment”) is entered into as of _________, 2021, by and between Yingling Aircraft, Inc., a Kansas corporation (“Assignor”); and INTRUST Bank, N.A., a national banking association (“Lender”). Recitals A. Wichita Airport Authority, Wichita, Kansas (“Lessor”) and LeaseCorp Financial, Inc., a Kansas corporation, entered into that certain Master Lease Agreement dated June 12, 2012, which was assigned by LeaseCorp Financial, Inc. to LeaseCorp Aviation, LLC, which was then assigned by LeaseCorp Aviation, LLC to Yingling Aircraft, Inc., as may be amended, all of which are incorporated herein by reference (together, “Master Lease 1”), covering certain aircraft hangar operation facilities located at the Dwight D. Eisenhower National Airport, Wichita, Kansas, further described as Tract 1 on Exhibit “A” attached hereto and incorporated by reference, and any and all improvements now or hereafter located thereon (such land and improvements being herein referred to collectively as “Tract 1”). B. Wichita Airport Authority, Wichita, Kansas (“Lessor”) and LeaseCorp Aviation, LLC, a Kansas limited liability company, entered into that certain Master Lease Agreement dated October 14, 2014 and Supplemental Agreement No. 1 dated March 1, 2016, as may be amended, all of which are incorporated herein by reference (together, “Master Lease 2”), covering certain aircraft hangar operation facilities located at the Dwight D. Eisenhower National Airport, Wichita, Kansas, further described as Tract 2 on Exhibit “A” attached hereto and incorporated by reference, and any and all improvements now or hereafter located thereon (such land and improvements being herein referred to collectively as “Tract 2”). -
RG96-033 Addition of a New Class of Nasdaq-100 Index® Options Due To
Regulatory Circular RG96-33 Date: April 4, 1996 To: Members and Member Organizations From: Office of the Chairman Re: Addition of a New Class of Nasdaq-100 Index® Options Due to a Change in the Method of Calculating Exercise-Settlement Value Summary: The Chicago Mercantile Exchange (“CME”) anticipates receiving approval from the Commodity Futures Trading Commission to list Nasdaq-100 Index futures and futures options contracts and plans to commence trading in these instruments on Wednesday, April 10, 1996. Nasdaq-100 Index futures contracts at the CME have been designed with a different expiration- settlement value methodology than the calculation used to determine the settlement value currently employed in conjunction with Nasdaq-100 Index Options (ticker symbol NDX and overflow symbol NDZ) at the Chicago Board Options Exchange (“CBOE”). To facilitate hedging and arbitrage strategies by market participants in Nasdaq-100 Index derivatives, the CBOE has filed with the Securities and Exchange Commission an amendment to its rules to allow for a new class of Nasdaq-100 Index Options with an exercise-settlement value calculation methodology which conforms with the one to be employed by the CME. Approval of this rule change is anticipated prior to April 10, 1996. This circular explains the effects of the change on CBOE policies and procedures, and the manner in which existing and new Nasdaq-100 Index Options series will be identified for trading. Ticker Symbol Changes and Nasdaq-100 Index Options Class Addition: To implement this rule change it is necessary to create a new class of Nasdaq-100 Index Options which will be listed in parallel with the existing class. -
A Potential Pitfall for the Unsuspecting Purchaser of Repossessed Collateral
A Potential Pitfall for the Unsuspecting Purchaser of Repossessed Collateral: The Overlooked Interaction Between Sections 9- 504(4) and 2-312(2) of the Uniform Commercial Code ROBYN L. MEADOWS* TABLE OF CONTENTS Introduction . .................................... 168 I. The Problem . ............................... 169 II. Rights of Purchaser of Repossessed Collateral in the Absence of Default ........................ 172 A. Purchaser's Rights Under Article Nine .......... 173 B. Other Law Governing the Purchaser's Rights ..... 181 III. Debtor's Remedies Against Purchaser ............. 190 IV. Purchaser's Rights Against Selling Secured Party ..... 195 A. The Warranty of Title Under Article 2 .......... 195 B. The Right of Restitution .................... 201 V. The Inadequacy of the Purchaser's Common Law Remedy . ................................... 204 VI. Proposed Amendment to Section 9-504(4) .......... 209 A. Method for Allocating Risks Between Debtor and Purchaser ............................... 210 B. Statutory Solution ......................... 216 * Associate Professor of Law, Widener University School of Law, Harrisburg, Pennsylvania. J.D., University of Louisville; LL.M., Temple University. The author wishes to thank John Wiadis, Carolyn Dessin, andJuliet Moringiello for their insights and comments on earlier drafts of this Article and Ronald Phillips and James Annas for their valuable research assistance. THE AMERICAN UNIVERSITY LAW REVIEW [Vol. 44:167 INTRODUCTION Under the provisions of the Uniform Commercial Code (the Code), -
Crashes and Collateralized Lending Working Paper
Crashes and Collateralized Lending Jakub W. Jurek Erik Stafford Working Paper 11-025 Copyright © 2010 by Jakub W. Jurek and Erik Stafford Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author. Crashes and Collateralized Lending Jakub W. Jurek and Erik Stafford∗ Abstract This paper develops a parsimonious static model for characterizing financing terms in collateralized lending markets. We characterize the systematic risk exposures for a variety of securities and develop a simple indifference-pricing framework to value the systematic crash risk exposure of the collateral. We then apply Modigliani and Miller's (1958) Proposition Two (MM) to split the cost of bearing this risk between the borrower and lender, resulting in a schedule of haircuts and financing rates. The model produces comparative statics and time-series dynamics that are consistent with the empirical features of repo market data, including the credit crisis of 2007-2008. First draft: April 2010 This draft: July 2010 ∗Jurek: Bendheim Center for Finance, Princeton University; [email protected]. Stafford: Harvard Business School; estaff[email protected]. We thank Joshua Coval and seminar participants at the University of Oregon for helpful comments and discussions. An important service provided by financial intermediaries in the support of capital market trans- actions is the financing of security purchases by investors. Investors can buy securities with margin, whereby they contribute a portion of the purchase price and borrow the remainder from the intermedi- ary in the form of a collateralized, non-recourse short-term loan. -
Home Equity Loans - FREQUENTLY ASKED QUESTIONS
Home Equity Loans - FREQUENTLY ASKED QUESTIONS WHAT IS A HOME EQUITY LOAN? Home equity loans fall under the provisions of Section 50(a)(6), Article XVI, of the Texas Constitution. A home equity loan can be for any legal purpose which uses the equity (the difference between the home’s value and any outstanding debts against the home) in a member’s home for collateral. For home equity lending, Texas law restricts the total amount of all loans secured by the homestead to a maximum of 80% of the home’s value. Texas home equity loans can be a closed end loan with substantially equal payments over a fixed period of time, or an open end Home Equity Line of Credit (HELOC). WHAT PROPERTIES CAN BE CONSIDERED? The property used for collateral must be a single-family, owner-occupied homestead property, located within the Austin Metropolitan Statistical Area (Travis, Williamson, Hays, Bastrop and Caldwell counties). Qualifying properties are defined as either urban or rural. Urban properties consist of not more than 10 acres of land with any improvements contained thereon, within the limits of a municipality or it’s extraterritorial jurisdiction, or a platted subdivision; AND served by police protection, paid or volunteer fire protection, and at least three of the following services provided by a municipality or under contract to a municipality: electric, natural gas, sewer, storm sewer, or water. Rural property shall consist of not more than 200 acres for a family (100 acres for a single, adult person not otherwise entitled to a homestead), with the improvements thereon. -
Interpretations of FINRA's Margin Rule
3/21 (RN No. 21-13) 174 4210. Margin Requirements (Continued) (f) Other Provisions (Continued) (8) Special Initial and Maintenance Margin Requirements (Continued) member at which a customer seeks to open an account or to resume day trading knows or has a reasonable basis to believe that the customer will engage in pattern day trading, then the special requirements under paragraph (f)(8)(B)(iv) of this Rule will apply. /01 Multiple Purchases and Sales If a customer enters an order to purchase a security and sells the same security within the same day, but for reasons beyond the customer’s control e.g., price, the purchase was executed in smaller blocks, it will be considered as one day trade. However, the member must be able to demonstrate that it was the customer’s intent to execute one day trade. This will also apply to when a customer enters a sale order and buys the same security within the same day. In addition, the trades would have to have been executed in sequential order. One purchase and several subsequent sale transactions of the same security, where the sales were executed in sequential order within the same day, shall constitute one day trade. One sale and several subsequent purchases of the same security, where the purchases were executed in sequential order within the same day, shall also constitute one day trade. /02 Multiple Purchases and Sales – Alternative Method Rather than counting day trades based on the number of transactions a customer executes to establish or increase a position that is liquidated on the same day (as set out in Interpretation /01 above) a firm may instead count day trades based on the number of times during the day that the day trading customer changes its trading direction (i.e., changes from buying a particular security to selling it, or FKDQJHVIURPVHOOLQJDSDUWLFXODUVHFXULW\WREX\LQJLW ௗ Example A: 09:30 Buy 250 ABC 09:31 Buy 250 ABC 13:00 Sell 500 ABC The customer has executed one day trade.