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Mitsubishi outlines securities-lending program to PERS trustees, highlights indemnification and collateral standards
Summary
Mitsubishi told PERS trustees its securities-lending program offers indemnification, daily collateral monitoring and an 88/12 revenue split favorable to PERS; presenters also detailed haircuts (typical equity collateralization ~102% domestic, ~105% international), recall processes, proxy voting options and reinvestment risks.
Representatives from Mitsubishi Financial Group presented an overview of securities lending to the Public Employees Retirement System of Mississippi investment committee, describing how the program would operate and how Mitsubishi manages risk.
Tom Ryan, senior vice president and head of client management and optimization at Mitsubishi, and Gustaf (Gus) Christakos, first vice president and head of client relationships, said securities lending generates incremental revenue for long holders by lending a security to a borrower in exchange for cash collateral. Mitsubishi said it invests that collateral in short-duration, staff-approved instruments and splits gross revenue with the client. The firm described its indemnification model as a key differentiator: Mitsubishi indemnifies both the loan side and, in Mitsubishi's program, the reinvestment side, meaning Mitsubishi would cover certain counterpart shortfalls instead of the client.
Mitsubishi said typical collateralization is roughly 102% for domestic equities and 105% for international equities and that the firm maintains daily monitoring and a three-team structure (operations, trading desk and client service) to manage recalls and liquidity questions. Presenters explained proxy-vote handling options (clients can instruct loans to be recalled for voting or leave securities on loan) and said the firm would work with staff and managers to customize recall and voting preferences.
On economics, Mitsubishi described how cash-collateral reinvestment yields minus borrower rebates create a gross spread that is shared (presenters cited an 88/12 split in favor of the client). The firm said securities lending performs best in volatile markets or when specific securities are in high borrower demand and cited examples such as special borrow demand around tender offers, unique IPOs or thematic pressures.
Trustees asked questions about counterparty stays (regulatory 'stay' protocols), early-warning credit signs, the frequency of counterparty issues and reinvestment risk. Mitsubishi said stays are untested at scale, that early-warning anomalies in trading activity signal potential counterparty issues, and that counterparty failures are infrequent but covered under Mitsubishis indemnity. Staff noted Mitsubishi began full-time lending for PERS in October and agreed to return with a full-month performance report and regular reporting going forward.
Direct quotes below are from Mitsubishi presenters who introduced themselves during the presentation.
