SOLUTION SPOTLIGHT

New Loanet Service To Help Brokers Meet Their Client-Side Short Rebate Allocation Needs

The investor community (particularly hedge funds) demand highly competitive services from their brokers, whether they are prime brokers, retail or clearing firms. Investor clients rely on their brokers to provide value added services beyond execution and clearance; these include securities lending services as well as research and credit facilities.

From a securities lending perspective, the broker controls, to a certain extent, the client's ability to execute their short side trading strategies. In the US, in order to conform to Reg SHO, the broker must authorize short sale requests prior to execution in order to ensure that the trade will settle, and if required, borrow the securities to ensure settlement.

The investor community recognizes that their brokers derive significant revenue from the securities lending activity generated by covering the client's short sales. A key element to a broker's ability to compete as an effective Prime Broker in this market space is their capability to allocate a portion of the securities lending revenue earned to their clients, while at the same time maintaining their own profitability. Without this ability brokers are finding it increasingly difficult to attract, or retain, investors within their program.

For more than 25 years, SunGard has provided operational and regulatory solutions to support brokers in managing their street-side securities lending activity. These solutions include Loanet, Smart Loan, S3 and Smart Seg, amongst others. SunGard is now gearing up for BETA testing with existing clients a new offering, the Short Rebate Allocation Service (LSRA), a solution designed to help Brokers meet their client side short rebate allocation needs.

Comprehensive and Scalable

LSRA is a comprehensive, scalable ASP application that allows brokerage firms to calculate, maintain and process revenue sharing agreements with their customers. The application is a stand-alone service that can receive data feeds from other SunGard applications, as well as external data sources and internal client data sources. SunGard hosts and maintains the application in its Securities Finance Data Center, which helps to minimize the drain on our customers' IT resources. LSRA is managed to the same high standards of data integrity, reliability and security as SunGard's Loanet suite of products.

Allocation Engine Provides Flexibility

LSRA provides you the flexibility to process virtually any type of revenue/fee sharing arrangement through its Rebate Allocation Engine, the fully automated core of the system. The allocation engine makes extensive use of short interest profiles (account, office or firm) and calculation parameters, giving your firm complete flexibility to structure any type of revenue/fee sharing arrangement. Interest arrangements can be structured based on overall short balances or variable structures that consider the sources of the underlying securities (stock borrow or internal margin/firm availability). In addition, the allocation engine considers the allocation of street-side fails to ensure that interest is not allocated for uncollected short proceeds.

The system also provides several fail allocation methods and this is one of a number of firm level parameters. The allocation engine also allocates fees for pre-borrow conditions and pay to hold scenarios and has the capability to process "as of" adjustments (stock borrow amounts, rebate rates, profit centers, FX and Interest Rate indices) to ensure proper calculation and interest revenue reporting.

Automated, Standardized Data Feeds

LSRA is driven by standardized data feeds that automate the upload of all required data. These required data feeds include securities lending information, stock record extracts, security master data, security pricing and firm trading data. Optional feeds include FX, interest rate indices and security rate caps. Where other SunGard systems are used to hold some of this data, integration will be provided to automate the extraction of data required in order to minimise the integration effort. This information is loaded into the allocation engine and run against the system parameters to produce output reporting and data files.

User-Driven System Administration

System administration is user driven to ensure that LSRA supports your firm's user and data security policies, through the use of user group profiles, individual user permissions, two-tiered approvals for changes to system parameters and data backup/retention requirements.

Reports and Integration

Detailed and summary reporting provides you with internal profitability analysis and other management reporting, customer rebate statements and deal exception reporting. System reports allow you to manage short interest deal types (SIDTs), FX rates, interest indices and other system parameters.

To ensure that LSRA is integrated into your record keeping process, bookkeeping extracts automate general ledger entries. SunGard can also customize reporting and/or data extracts to meet specific client needs. The service can be delivered leveraging existing connections with SunGard and its browser-based interface eliminates the need for software installation on user desktops.