Equity Borrowing and Lending

 

The equity borrowing and lending markets provide necessary liquidity to facilitate hedging, short selling, fails, arbitrage and derivative trading as well as a source of additional income to lenders. Typically, equity borrowing and lending transactions take place in one of two ways, each designed to meet the specific regulatory and business needs of the participants.

 

RBC Capital Markets Equity Program

 

Loan vs. Collateral: This is by far the simplest type of loan arrangement whereby the lender lends securities versus acceptable high grade collateral (such as government issued or other guarantees, letters of credit or convertible securities) in exchange for a fixed fee. The market value of collateral lodged is normally in excess of the value of the securities borrowed by 2 to 5 percent. Securities loaned can be returned on same day notice. This type of transaction has the advantages of eliminating any cash reinvestment risk while earning incremental revenue on otherwise inactive assets.

 

Loan vs. Cash: This type of loan is executed by the lender providing the needed securities in exchange for cash collateral. As the lender has the ability to earn revenue by reinvesting the cash received from the borrower, the lender pays the borrower a rebate in the form of interest on the cash collateral. All transactions are marked to market daily and securities can be returned on same day notice. This type of transaction has the potential of substantially increasing the lenders returns based on their ability to reinvest the funds received versus the amount paid to the borrower.

 

Advantages of Securities Borrowing and Lending with RBC Capital Markets

 

Security of Capital: The combination of a credit worthy dealer such as RBC Dominion Securities Inc. and the use of high grade collateral can greatly reduce risks of securities borrowing or lending.

 

Expertise and Commitment: Expert personnel and a demonstrated commitment to all aspects of funding provide opportunities not available to others.

 

Market Share: As a major particpant in the Canadian equitiy markets, RBC Capital Markets is both a natural borrower and a lender of large amounts of equities. This exposure allows RBC Capital Markets to maximize value for lenders and provide securities to borrowers.

 

Product Lines: Due to the wide array of products supported by RBC Capital Markets we are able to provide unique reinvestment and funding opportunities not available elsewhere.