Security Lending, Internal Borrows, Omnibus Accounts, Position Netting, Tax Reporting

S

Steven.Davis

I have some very technical questions about trade accounting where the custodian/prime accounts are either omnibus or where the fund's trade accounting contains internal strategy distinctions which are not visible to the street.

Any suggestions appreciated,
Steven
 
  • Can a Portfolio Manager elect to lend shares between accounts which have different beneficial ownership?
  • How should a netted shorts participate in the collateral and costs of a loan?
As I am sure that you well appreciate, the setup on these questions can be quite lengthy, but without it, one can easily misunderstand the context and provide inaccurate answers. This particular example is only to facilitate discussion. Please consider other possible situations as well as I am concerned with creating software to handle the general problem.

Relationship Between Portfolio and Strategy
Code: 
Account Structure Fund 1	
	Cash+Eq	Cash	Tgt Cash									
Class A	45%	9%	1%									
Class B	35%	3%	1%									
Class C	9%	2%	1%									
SMA 1	6%	1%	1%									
SMA 2	5%	1%	1%									
Total	100%											

Investment Targets												
	Fund1	Fund2										
Hedge	11%	1%										
Growth	20%	28%										
Balanc	29%	29%										
Value	35%	24%										
Fixed	14%	20%										
												
Current Assets (M)												
	Fund1	Fund2										
Hedge	26	2										
Growth	49	85										
Balanc	99	85										
Value	97	61										
Fixed	45	78										
												
Curr Investment Distribution												
	Fund1	Fund2										
Hedge	8%	1%										
Growth	16%	28%										
Balanc	31%	27%										
Value	31%	20%										
Fixed	14%	25%										
Total	100%	100%										
												
Analyst Tags for Hedge Strategy												
Holdings in FB												
Group	Long 20k Shares		20000									
Joe	Long 10k Shares		10000									
Mark	Long 20k Shares		20000									
Adam	Short 5k Shares		-5000									
Decorr	Short 10k Share		-6800									
Net				38200
Now that we have some context about how the Investment House organizes its funds and advisers, let's postulate some holdings in Facebook.
Here are some unimaginative orders to generate our holdings:
Code: 
On 7/1, BEAR executes, Buy 19800 FB MKT gets avg fill of $30/share											
Custody	Account	Amount										
GSCO	Omnibus	11700										
MSCO	Omnibus	8100										
On 7/2, CITI executes, Buy 18400 FB MKT gets avg fill of $31/share												
Custody	Account	Amount										
GSCO	Omnibus	8800										
MSCO	Omnibus	9600
Code: 
Fully Differentiated Holdings in FB: Facebook												
Asset	Pos	Fund	Account	Strat	Analyst	PDate	CBasis	TaxLot	Amount	Prime		
USD	Long	Fund1	ClassA	Hedge					2.5E+07	DB		
USD	Long	Fund1	ClassA	Hedge					5.0E+05	GSCO		
USD	Long	Fund1	ClassA	Hedge					5.0E+05	MSCO		
FB	Long	Fund1	ClassA	Hedge	Group	1-Jul	30	101	10000	GSCO		
FB	Long	Fund1	ClassA	Hedge	Group	1-Jul	30	101	7000	MSCO		
FB	Long	Fund1	ClassA	Hedge	Group	2-Jul	31	102	1000	GSCO		
FB	Long	Fund1	ClassA	Hedge	Group	2-Jul	31	102	2000	MSCO		
FB	Long	Fund1	ClassA	Hedge	Joe	1-Jul	30	101	7000	GSCO		
FB	Long	Fund1	ClassA	Hedge	Joe	1-Jul	30	101	3000	MSCO		
FB	Long	Fund1	ClassA	Hedge	Mark	2-Jul	31	102	10000	GSCO		
FB	Long	Fund1	ClassA	Hedge	Mark	2-Jul	31	102	10000	MSCO		
FB	Long	Fund1	ClassA	Hedge	Adam	1-Jul	30	101	-4000	GSCO		
FB	Long	Fund1	ClassA	Hedge	Adam	1-Jul	30	101	-1000	MSCO		
FB	Long	Fund1	ClassA	Hedge	Decorr	1-Jul	30	101	-1300	GSCO		
FB	Long	Fund1	ClassA	Hedge	Decorr	1-Jul	30	101	-900	MSCO		
FB	Long	Fund1	ClassA	Hedge	Decorr	2-Jul	31	102	-2200	GSCO		
FB	Long	Fund1	ClassA	Hedge	Decorr	2-Jul	31	102	-2400	MSCO
Suppose that the PM for Port1 wants to Lend out 20k shares to raise some capital on 7/3 using oldest taxlots.
Q. Can PM elect to lend shares between accounts which have different beneficial ownership?

Code: 
Assuming Not												
Action		Fund	Account	Amount	Prime								
Advertise	Fund1	ClassA	11400	GSCO								
Advertise	Fund1	ClassA	8600	MSCO

Suppose that counterparties are found and the full amount is loaned
Code: 
Action	Fund	Account	Rate	CntPrty	FinLot	Amount	Prime					
Lend	Fund1	ClassA	-0.5%	Well	201	11400	GSCO					
Lend	Fund1	ClassA	-0.3%	Well	202	8600	MSCO
EOD account holdings
Code: 
Custodian View												
Pos	Prime	Amount										
Long	GSCO	20500										
Long	MSCO	17700										
Lent	GSCO	11400										
Lent	MSCO	8600

Q. How should to the netted shorts participate in the collateral and costs of a loan?

Code: 
Administrator View												
Asset	Pos	Fund	Account	Rate	FinLot	Amount	Prime					
USD$	Long	Fund1	ClassA			25M	DB					
USD$	Long	Fund1	ClassA			500K	GSCO					
FB	Long	Fund1	ClassA			20500	GSCO					
FB	Lent	Fund1	ClassA			11400	GSCO					
USD$	Collat	Fund1	ClassA	-0.50%	201	364800	GSCO					
USD$	Cost	Fund1	ClassA	-2.25%	201	-22.49	GSCO					
USD$	Long	Fund1	ClassA			500000	MSCO					
FB	Long	Fund1	ClassA			17700	MSCO					
FB	Lent	Fund1	ClassA			8600	MSCO					
USD$	Collat	Fund1	ClassA	-0.30%	202	275200	MSCO					
USD$	Cost	Fund1	ClassA	-2.21%	202	-15.46	MSCO

Code: 
Accounting View												
Asset	Pos	Fund	Account	Strat	Analyst	PDate	Basis	TaxLot	Rate	FinLot	Amount	Prime
USD$	Long	Fund1	ClassA	Hedge							25M	DB
USD$	Long	Fund1	ClassA	Hedge							500K	GSCO
USD$	Long	Fund1	ClassA	Hedge							500K	MSCO
FB	Long	Fund1	ClassA	Hedge	Group	1-Jul	30	101			10000	GSCO
FB	Long	Fund1	ClassA	Hedge	Group	1-Jul	30	101			7000	MSCO
FB	Long	Fund1	ClassA	Hedge	Group	2-Jul	31	102			1000	GSCO
FB	Long	Fund1	ClassA	Hedge	Group	2-Jul	31	102			2000	MSCO
FB	Long	Fund1	ClassA	Hedge	Joe	1-Jul	30	101			7000	GSCO
FB	Long	Fund1	ClassA	Hedge	Joe	1-Jul	30	101			3000	MSCO
FB	Long	Fund1	ClassA	Hedge	Mark	2-Jul	31	102			10000	GSCO
FB	Long	Fund1	ClassA	Hedge	Mark	2-Jul	31	102			10000	MSCO
FB	Long	Fund1	ClassA	Hedge	Adam	1-Jul	30	101			-4000	GSCO
FB	Long	Fund1	ClassA	Hedge	Adam	1-Jul	30	101			-1000	MSCO
FB	Long	Fund1	ClassA	Hedge	Decorr	1-Jul	30	101			-1300	GSCO
FB	Long	Fund1	ClassA	Hedge	Decorr	1-Jul	30	101			-900	MSCO
FB	Long	Fund1	ClassA	Hedge	Decorr	2-Jul	31	102			-2200	GSCO
FB	Long	Fund1	ClassA	Hedge	Decorr	2-Jul	31	102			-2400	MSCO
FB	Lent	Fund1	ClassA	Hedge	Group	3-Jul		101			6706	GSCO
FB	Lent	Fund1	ClassA	Hedge	Group	3-Jul		101			5670	MSCO
FB	Lent	Fund1	ClassA	Hedge	Group	3-Jul		102			0	GSCO
FB	Lent	Fund1	ClassA	Hedge	Group	3-Jul		102			83	MSCO
FB	Lent	Fund1	ClassA	Hedge	Joe	3-Jul		101			4694	GSCO
FB	Lent	Fund1	ClassA	Hedge	Joe	3-Jul		101			2430	MSCO
FB	Lent	Fund1	ClassA	Hedge	Mark	3-Jul		102			0	GSCO
FB	Lent	Fund1	ClassA	Hedge	Mark	3-Jul		102			417	MSCO
USD$	Collat	Fund1	ClassA	Hedge					-0.50%	201	365K	GSCO
USD$	Collat	Fund1	ClassA	Hedge					-0.30%	202	275K	MSCO
USD$	Cost	Fund1	ClassA	Hedge					-2.25%	201	-22.49	GSCO
USD$	Cost	Fund1	ClassA	Hedge					-2.21%	202	-15.46	MSCO

Happy to provide these tables in Excel, but I am not sure that this is the most productive way to have this discussion.
If there was a book or website that discussed these issues at this depth, that would be a perfectly satisfactory answer.
Thanks.
 
Here are a few quotes/summaries from the FASB Guidance on offsetting

210-20-05-1 This Subtopic provides criteria for offsetting amounts related to certain contracts and provides guidance on presentation. It is a general principle of accounting that the offsetting of assets and liabilities in the balance sheet is improper except if a right of setoff exists.

210-20-45-1 A right of setoff exists when all of the following conditions are met:
a. Each of two parties owes the other determinable amounts.
b. The reporting party has the right to set off the amount owed with the amount owed by the other party.
c. The reporting party intends to set off.
d. The right of setoff is enforceable at law.

210-20-45-4 If a party does not intend to set off even though the ability to set off exists, an offsetting presentation in the statement of financial position is not representationally faithful.

210-20-45-5 Acknowledgment of the intent to set off by the reporting party and, if applicable, demonstration of the execution of the setoff in similar situations meet the criterion of intent.

210-20-45-11 A borrow and a lend offset if
a. Same counterparty
b. Same explicit settlement date
c. Under a master netting agreement
d. Must be strictly book-entry form security transfer
e. Security transfer system must be a cash settlement on net amount due at EOD basis (support daylight overdraft)
f. Must intend to use the same clearing bank
g. Cannot mix repos with other types of positions
 
You must log in or register to reply here.
Back
Top