A well-managed securities lending programme can be a valuable portfolio management tool, and can enable funds to receive an additional source of income that can add incremental risk-adjusted returns to a fund’s overall investment return objective.
As of December 2020, 22 SPDR ETFs participate in a securities lending programme, which has been designed to open up the funds to the potential benefits of securities lending while mitigating associated risks. Participation in the securities lending programme is determined by considerations related to each individual ETF, the local rules and regulations, its underlying assets, its investment objectives, taxation, and other circumstances. Not all funds engage in securities lending and the decision to participate is taken by each fund’s relevant board or management company in relation to each fund.
|EMEA SPDR ETFs|
|SPDR MSCI Europe Communication Services UCITS ETF||SPDR MSCI Europe UCITS ETF|
|SPDR MSCI Europe Consumer Discretionary UCITS ETF||SPDR MSCI World Communication Services UCITS ETF|
|SPDR MSCI Europe Consumer Staples UCITS ETF||SPDR MSCI World Consumer Discretionary UCITS ETF|
|SPDR MSCI Europe Energy UCITS ETF||SPDR MSCI World Consumer Staples UCITS ETF|
|SPDR MSCI Europe Financials UCITS ETF||SPDR MSCI World Energy UCITS ETF|
|SPDR MSCI Europe Health Care UCITS ETF||SPDR MSCI World Financials UCITS ETF|
|SPDR MSCI Europe Industrials UCITS ETF||SPDR MSCI World Health Care UCITS ETF|
|SPDR MSCI Europe Materials UCITS ETF||SPDR MSCI World Materials UCITS ETF|
|SPDR MSCI Europe Small Cap UCITS ETF||SPDR MSCI World Technology UCITS ETF|
|SPDR MSCI Europe Technology UCITS ETF||SPDR MSCI World Industrials UCITS ETF|
|SPDR MSCI Europe Utilities UCITS ETF||SPDR MSCI World Utilities UCITS ETF|
Source: State Street Global Advisors, as of 31 December 2020. Funds not listed in the above table do not currently participate in a securities lending programme, though they are entitled to do so. Should the Directors elect to change this policy in the future, due notification will be given to Shareholders and the respective Sub-Fund Supplement will be updated accordingly. SPDR ETFs are a suite of Ireland-domiciled UCITS exchange traded funds (ETFs), managed by State Street Global Advisors. These ETFs invest in physical securities to track the performance of a specified benchmark index.
All revenues arising from securities lending in respect of an ETF, net of direct and indirect operational costs, are returned to the fund.
A securities lending transaction involves the temporary transfer of securities from one party (the lender) to another party (the borrower). Securities lending enables funds enrolled
in the securities lending programme (the lender) to potentially generate an additional source of income.
In all cases, the securities borrower is a financial intermediary, such as a broker, dealer or market maker. In exchange for borrowing the securities from a fund, the borrower transfers collateral to the lending agent who holds that collateral in an account in the fund’s name. The borrower pays a fee for this service and is contractually obliged to return the loaned securities, while the fund receives a fee for the use of its assets. The loan is usually arranged by the securities lending programme coordinator, known as a lending agent.
During the term of the loan, the borrower must provide collateral to the funds to mitigate against the risk of non-return of any loaned securities. The borrower receives all distributions and dividends arising during the period of the loan and pays these amounts to the lending agent at the same rate as if the securities were held in custody. The lending agent then pays all distributions on to the underlying lender. The borrower will generally have the right to exercise any voting rights arising during the period of the loan that relate to the loaned securities.
The State Street Global Advisors’ Securities Lending Committee (Committee) oversees and comprehensively reviews performance and effectiveness, and provides oversight of State Street Global Advisors’ Global Securities Lending programmes.
The Committee evaluates the performance of State Street Global Advisors’ securities lending agents. It also reviews and challenges State Street Global Advisors’ Global Securities Lending programmes against industry standards and performance, current risk appetite levels, and current market conditions.
In addition, the securities lending programme for each participating fund is reviewed, approved and overseen by the respective fund boards.
State Street Securities Finance (SSSF), which has been appointed as lending agent, is one of the world’s most experienced lending agents, providing both custodial and third-party lending services covering more than 30 international markets. SSSF operates through entities within the State Street group of companies (and which are therefore affiliates of State Street Global Advisors). SSSF has been providing securities lending services since 1974, and now operates from trading desks based in London, Boston, Hong Kong, Toronto and Sydney. This international presence provides local expertise and 24-hour access to the securities lending markets. SSSF offers considerable depth of inventory and market presence, thus attracting high credit-quality borrowers and providing insights into the level of demand for securities.
SSSF employs a number of safeguards for clients engaged in securities lending, including:
In general the minimum acceptable collateral currently accepted are:
The collateral amount is marked to market daily. If collateral levels are insufficient for a particular loan, the borrower is required to provide more collateral. If the loan is over- collateralised, the lending agent may return some of the collateral to the borrower.
State Street Bank and Trust Company (SSBTC) provides a counterparty default indemnity. In accordance with this indemnity, if a counterparty fails to return securities lent by an ETF, subject to the terms of the securities lending agreement, SSBTC would either purchase replacement securities for the ETF, or shall credit to the ETF an amount of cash equal to the market value of the securities.
The percentage out on loan will depend on the type of fund and securities held but will be subject to the below limits established by State Street Global Advisors as internal guidelines for the lending programme:
As with all investment activities, securities lending bears risks. Here are some of the key risks and safeguards that are in place :
|Risks||Risk Mitigates and Considerations|
Counterparty or Borrower Risk
Borrowing counterparty default
Failure to provide manufactured income or entitlements
Counterparty credit risk management
Controlling the quality of approved
borrowers Monitoring daily margin
requirements Borrower default
Marked to market daily
|Failed Trade Settlement||Agent lender depth of supply
Agent lender can execute buy in to force settlement As one of the largest lending agents, State Street
Securities Finance has extensive relationships across the industry, which helps to avoid settlement failures
|Reputational Risk||Comprehensive oversight and ongoing communication with the lending agent|
|Collateral Diversification||The collateral is sufficiently diversified in terms of country, markets and issuers|
Source: State Street Global Advisors, as of 31 December 2020.
While not without risk, a well-managed securities lending programme can help to unlock an additional source of income in portfolios. As one of the world’s largest financial institutions, State Street Global Advisors has the scale and global reach to deliver clients the potential benefits of securities lending while carefully managing risk and cost.
The Funds may participate in an agency securities lending programme. Securities lending programmes and the subsequent reinvestment of the posted collateral are subject to a number of risks, including the risk that the value of the investments held in the Collateral Pool may decline in value and may at any point be worth less than the original cost of that investment. Engaging in securities lending could have a leveraging effect, which may intensify the market risk, credit risk and other risks associated with investing in this Fund. Past lending figures are not a reliable indicator of future levels. The Fund does not intend to engage in repurchase agreements or reverse repurchase agreements. The Company has appointed State Street Bank International GmbH London Branch, a bank incorporated under the laws of Germany whose registered office is at Brienner Strasse 59, 80333 Munich, Germany, and acting for the purposes of the securities lending agreement through its London branch (Branch Registration No. in England BR009903) at 20 Churchill Place, London E14 5HJ, England as a securities lending agent to the Company pursuant to a securities lending agreement between the Company, State Street Bank International GmbH London Branch, State Street Bank and Trust Company and the Depositary dated 5 December 2014 as amended (a “Securities Lending Agreement”). This Securities Lending Agreement appoints State Street Bank International GmbH London Branch to manage the Fund’s securities lending activities and provides for State Street Bank International GmbH London Branch to receive a fee at normal commercial rates to cover all fees and costs associated with the provision of this service. Any income earned from securities lending, net of direct and indirect operational costs (including the fee paid to State Street Bank International GmbH London Branch), will be returned to the Fund. Full financial details of any revenue earned and the direct and indirect operational costs and fees incurred with respect to securities lending for the Fund, including fees paid or payable to State Street Bank International GmbH London Branch, will be included in the annual financial statements.
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Exp. Date: 28/02/2022