Overlaying Fully Closed Repo (FCR) with an Existing Securities Lending Program

 

In today’s market, Beneficial Owners of short-dated U.S. Treasury securities have a unique opportunity to earn an additional 12 basis points of guaranteed, risk-free income—above and beyond the yield enhancement typically delivered by securities lending agents. The Fully Closed Repo (FCR) Overlay Trade introduces no incremental financial, regulatory, or reputational risk. For Beneficial Owners already engaged in securities lending—having accepted the inherent risks of that activity—FCR presents a seamless, low-friction strategy that aligns with existing risk frameworks while enhancing returns.

 

Easy Integration: FCR can be effortlessly integrated into your existing securities lending model. All FCR-related activities, such as collateral substitutions, buying and or selling securities, are executed and handled no differently than any other similar transactions.

 

Cost-Free: Implementing FCR as an overlay incurs no additional costs, making it a financially sound decision.

 

Risk-Free: FCR transactions do not add any risk elements to your portfolio or current securities lending model.

 

Highly Profitable: By adding FCR, you can significantly increase the yield on your portfolio, without altering your current portfolio structure.

 

Rebates: Your current Securities Lending Agent should welcome FCR overlay inclusion and handle all related activities, as they will earn their rebate from the 12 basis points received from AgentLenderPLUS (ALP). If, for some reason, your securities lending agent does not want to do the work, the ALP team will assist you.

 

There are Two Ways to Overlay FCR to Your Current Securities Lending Model:

 

                  1. Your Securities Lending Agent does all the work (Securities Lending Agent earns a rebate).

                  2. The Beneficial Owner executes FCR directly with ALP (see attached FCR Trade Basics) and pays no rebate.

 

Details for when your Securities Lending Agent does all the work.

 

Step 1: Beneficial Owner adds ALP to their approved counterparty list for FCR-related transactions only.

Step 2: Beneficial Owner requests the Securities Lending Agent approve ALP as an acceptable counterparty for FCR-related transactions only.

Step 3: ALP will notify the Securities Lending Agent as collateral substitutions arise.

Step 4: ALP informs Securities Lending Agent of pending collateral substitution(s) and executes substitution.

Step 5: Upon any termination event, such as securities maturing, Repo term expiration, sale of securities (in part or in whole), the Beneficial Owner will work in conjunction with ALP, who will then notify the Securities Lending Agent.

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Note: Collateral Substitution: Under your current strategy, you lend ultra-short U.S. Treasuries as General Collateral (GC), not specialized collateral. We anticipate that the current borrower will have no objections to substituting collateral of identical credit quality and similar maturity.

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Net Results of FCR Overlay trade to existing Securities Lending Model:

•In addition to receiving a best-efforts performance from your Securities Lending Agent, the Beneficial Owner will receive an additional 12 basis points enhancement on 100% of their FCR portfolio.

•A potential adjustment to your portfolio’s Weighted Average Maturity (WAM) due to collateral substitutions.

 

As previously noted within the FCR Trade Basics attachment, the FCR Annex governs collateral substitutions, ensuring that any effect on your portfolio's WAM remains within a maximum ±5-day WAM differential. The minor ±5-day WAM adjustment is outweighed by the guaranteed 12 bps yield enhancement that ALP provides immediately upon settlement.

 

For additional information, please contact Lew Goldman at lgoldman@agentlenderplus.com