This is automatic, and your securities may be loaned out at any time — but you don’t have to choose which ones or when. Below are some, but not necessarily all, of the risks lender may be exposed to when participating in securities lending programs. With Securities Lending there is a risk of loss should the borrower default before the securities are returned, and due to market movements, the value of collateral held has fallen and/or the value of the securities on loan has risen. Securities lending aims to generate additional income for a fund, subject to the risks outlined in the following section and in the funds’ prospectus. Investors should understand and consider three primary types of risk associated with securities lending: Reinvestment risk derives from the reinvestment of cash collateral received to secure a loan. Also, certain cash reinvestment arrangements may need to comply with rule 12d1-1 under the Act. How is your current Securities Lending program really performing? Risk Management. You can sell loaned securities or end loans at any time. Another risk to the lender could be that the borrower becomes insolvent and is unable to return the borrowed security. While proprietary technology platforms may help manage risk, risk cannot be eliminated. Securities Lending. All investment strategies involve risk, including securities lending. We host several round table peer-sharing events, two major conferences, three industry training programs, and one major forum. Cash Collateral Reinvestment Risk – Cash must be reinvested to earn a higher rate of return than the manufactured interest paid from the lender to borrower (creating a positive spread). As a lender, the main risk is that the value of the collateral decreases below the cost of the security that was lent out. 2. The risks associated with a securities lending program can be complex to identify and measure. Securities Lending provides products and services to The Risk Management Association member institutions involved in agent lending functions within the securities-based lending industry. It’s a great way to earn income on securities you already own. Best Practices. to participate in the Securities Lending Fully Paid program. The revenue from securities lending is returned to the funds, net of the fees paid to the lending agents. Below are the primary risks in securities lending, how these risks can be mitigated and how beneficial owners can monitor their own program. In a securities lending program, the borrower (a financial institution like a bank or brokerage firm) will review your portfolio to determine which securities are eligible for borrowing. We offer a complete program review, from earnings evaluations using market benchmarks, to risk analysis, to governance structures and operating process review. Securities Lending Risks. The level of risk in securities lending can usually be tailored to a beneficial owner depending on the level of risk they are willing to accept. Are all of your risks truly addressed? In evaluating a securities lending program, fund sponsors should focus on the ability of the lending agent to mitigate the risks of cash collateral impairment and liquidity as well as counterparty exposure. 1 To the extent that a fund seeks to lend its portfolio securities to affiliated borrowers, or to compensate an affiliated lending agent with a share of the lending program's revenues, exemptive relief from the Commission may be required. When you enroll in the Securities Lending Fully Paid (SLFP) program, you can receive monthly income for lending your fully paid securities1 to Schwab. Your current securities lending Fully Paid program is your current securities lending within the securities-based lending industry monitor their program. 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