SunGard Adds Automatic Recall Feature To Securities Lending Platform

Borrowers don't like it. But securities lenders are increasingly intolerant of a risk they run when lending stock missing dividend payments or other corporate actions with real value, such as takeover and redemption offers. Every agent lender, blamed by an

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Borrowers don’t like it. But securities lenders are increasingly intolerant of a risk they run when lending stock: missing dividend payments or other corporate actions with real value, such as takeover and redemption offers. Every agent lender, blamed by an institutional client for a missed entitlement, has a horror story to tell. There are now moves afoot to re-write the standard documentation of securities loans in order to spell out the respective obligations of lenders and borrowers more clearly.

Reading between the lines of the Stock Borrowing and Lending Code of Guidance published by the UK Stock Lending and Repo Committee (which meets under the chairmanship of the Bank of England), it is clear that the only way lenders can be absolutely sure of collecting entitlements is to get the stock back and do it themselves (or at least instruct their custodian to do it on their behalf). Which is one reason why it was no surprise to find the Securities Industry Association (SIA) calling for new standards in automating the recall process in the securities lending industry. The Group of Thirty (G30) report on clearing and settlement, published this month, made much the same point in Recommendation 8.

So there is considerable official and unofficial momentum behind greater automation of the process by which stock can be recalled and corporate actions processed. Indeed, the SIA has called for software vendors to establish electronic recall management services, or what it has dubbed Automated Recalls Management Systems (ARMS). SunGard Securities Finance (SSF) says it was in response to this call that it has undertaken to upgrade the automated recall feature on its securities lending platform.

SSF says it has worked closely with the SIA Securities Lending Subcommittee, which issued a revised white paper on 17 January this year describing the minimum requirements for an ARMS service. SSF is, of course, the new name for what is probably the best-known and most widely used suite of securities lending platforms in the industry: the Loanet service and the Global One product, which were acquired by SunGard last year. So the company has a well established client base encompassing many of the major market participants around the world.

SSF says its ARM solution will meet the criteria laid down in the SIA White Paper, which will be adopted by SIA members shortly. It will include the issuance and acceptance of electronic recall notices; the monitoring and tracking of outstanding recalls; the ability to update recalls for buy-in activities or corporate actions; and a complete audit trail of all activities, including the return of securities or buy-in executions. In addition, the SSF ARMS service will comply with the SIA stipulation that it identify each recall with a specific lender’s reference number, to ensure both parties reference the specific recall on all subsequent activities and provide timestamps on the issuance of all recalls.

SSF adds that it is adopting a phased approach to fulfilling these requirements, in the hope of maximising progress while minimising disruption to day-to-day activities. The first phase, which is available already, will see the existing Loanet Full Service Recalls Processing brought into line with many of the SIA recommendations. The second phase, which is scheduled for completion in the second quarter of this year, will include expansion of the service to Loanet Select Service participants. It will include links to clients using SSF’s other products – Global One, WorldLend and OmniLend – and incorporate the SIA Securities Lending Committee recommendation that the ARMs be interoperable, so that industry participants can communicate with one another regardless of which ARM is being used.

The SIA envisages using the US central securities depository, the Depository Trust and Clearing Company. (DTCC), as the intermediary messaging hub, initially for DTCC participants only. However, the SIA white paper also recommends that this service should be made available to both non-DTCC and non-U.S. market participants, so provision will be made for them to access the service at a later date. It is estimated that the DTCC’s messaging hub will be launched in May 2003.

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