Barclays Capital

Repo and Securities Lending

Product Guide

Table of Contents
Introduction Brief History of the Repo and Securities Lending Market Repurchase Agreements A Repo Transaction in Detail A Reverse Repo Transaction in Detail Sell and Buy-Backs A Sell/Buy-Back Transaction in Detail A Buy/Sell Transaction in Detail Securities Lending Securities Lending, Transaction in Detail Guidelines for Investing in Repo Collateral Types Tri-Party Repo How Does a Tri-Party Repo Work? Summary of Product Features Glossary Contacts 1 2 3-4 5 6 7 8 9 10 11-13 14 15 16 17-18 19 20-24 25

Introduction
Barclays Capital has positioned itself to offer the products of International Repo and Securities Lending. With emphasis on portfolio performance and yield enhancement, the International Repo and Securities Lending markets provide attractive options to both the cash investor and the security owner. This exceptional money market instrument allows cash investors to better manage their cash. Barclays Capital is a dedicated market professional in this forum and is committed to the continued use and development of this global product. Securities holders are able to take advantage of their current portfolio holdings and through lending, enhance their portfolios profitability. The Barclays Group is one of the leading global financial institutions and one of the premier banks in the United Kingdom. This institution is over 300 years old and continues today its traditions of quality, service, financial innovation and financial stability. Barclays Capital is the investment banking division of Barclays Group, with offices in Europe, the Americas and Asia. The Barclays Capital Repo team includes desk trading in 12 currencies and the emerging markets with offices located in London, Tokyo, Paris and New York ensuring full coverage of the Global Repo and Securities Lending markets.

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Brief History of the Repo and Securities Lending Market

The Securities Lending and Repurchase Agreement (Repo) Market developed in the US to better meet domestic trading obligations and to reduce the cost of failed trades. During the 1980s and early 1990s, Repo made a natural progression toward the European continent as well as in the Pacific Rim and on 2 January 1996, the United Kingdom began trading Gilt Repo. It continues to be an ever increasing global market with growth in Emerging Markets, such as Latin America, South America, Mexico, Russia, Eastern Europe and Southeast Asia. Clearstream and Euroclear, two major international clearing agencies, were the first in Europe to begin a Securities Lending program to facilitate the receipt and delivery of securities globally. Their Securities Lending programs were aimed at reducing existing market inefficiencies and the number of failed trades. As both domestic and international derivative products (specifically futures and options) began to take hold, broker/dealers sold short with more regularity. The Group of 30 highlighted securities borrowing and lending as a vehicle that would, in the coming years, lead to increased market liquidity. As a result, the demand to borrow securities has expanded and Repo and Securities Lending as a means of reducing related costs has become a major product focus. In order to reduce these costs and increase accessibility to supply, international brokers/dealers began to seek out international investors directly. The International Repo and Securities Lending markets have attracted numerous participants including central banks, corporate cash managers, banks, pension funds, insurance companies, mutual funds and arbitrators. Today the Global Repo and Securities Lending markets provide users with a wide variety of products in all major currencies (US $, Euro, Japanese Yen as well as sterling, Skandanavia (list), Australian & New Zealand $ and most emerging markets).

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Repurchase Agreements
Repurchase Agreements, commonly referred to as Repos, are money market transactions in which one party sells securities to another while agreeing to repurchase those securities at a forward date. These transactions possess several characteristics associated with a secured loan, with the lender of money receiving securities as collateral to protect against borrower default. In fact, Repos are frequently viewed by some market participants as securities sales with subsequent repurchases and secured loans by others. However, a distinguishing characteristic of a Repo is that the title of the securities distinctly passes from the buyer to the seller. Parties providing money are referred to as investors while parties providing securities are referred to as sellers. The terms securities and collateral are generally interchangeable. The terms Repurchase Agreement, Repo, Reverse Repo, and Resale are all used to describe the same transaction. One firms Repo is another firms Reverse Repo; both are the same transaction viewed from two different perspectives. It is common street practice for both parties to view the transaction from the dealers perspective. A dealer looking to borrow money is transacting a Repo, while a dealer looking to obtain securities is executing a Reverse Repo. Accordingly, when a client delivers money to a dealer, the transaction is often termed a Repo by both parties. Points to Summarize One firms Repo is another firms Reverse Repo Dealer borrowing money is Transacting Repo Dealer obtaining securities is Transacting a Reverse Repo Street convention is for both parties to view trades from the dealers perspective

Examples in this book will refer to all transactions from the dealers perspective. The Advantages of Repo There are many ways that Repo can enhance the portfolio profitability and enable greater market efficiency. Listed below are a few advantages to customers and dealers. For the Customer Repo (cash investors) Completely flexible regarding term Invest short term cash in a fully collateralized vehicle Competitively yielding money market investment For the dealer/broker Repo is used to: Finance long positions Reduce funding costs Enhance trading efficiency Facilitate matched-book and cash trading

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Barclays Capital specifically tailors Repo transactions as money market instruments for various customers in this market. These customers usually comprise two groups: cash investors and the security holders. Cash investors who find themselves long of cash can utilize Repos as a collateralized investment for a short period of time. Since this market has become more international in scope, investments may be made in all major currencies and transactions can be specifically tailored to customers needs. Security holders are able to take advantage of their current portfolio holdings and thus enhance their portfolios profitability. The following describes the types of products offered in Repo. Barclays Capital makes markets in all the products discussed.

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Repo Transaction in Detail

Barclays Capital sells securities versus a transfer of cash from the investing customer with a simultaneous agreement to repurchase the same securities at a future date. The securities are valued at the current market price plus all accrued interest to settlement date. At the termination of the Repo, the securities are repurchased at the original price value (market price + accrued interest), plus Repo interest. The price of the security remains the same as the term of the trade. All coupon interest which accrues during the term of the transaction is paid to the original seller of the securities. Example A customer has $139,695,652 to invest for 14 days from 1 Nov 2002 to 15 Nov 2002. Barclays Capital can provide the UST Bond 8% 11/15/21 as collateral and quotes a Repo rate of 1.58%; hence the customer will earn Repo interest of $85,835.22. Calculation Current Market Price Accrued interest as of 1 Nov 2002 All in Price 136 .36956522 139.6956522

Nominal Bonds pr ovided by Barcla ys Capital Investment Amount /(all in price/100) = 139,695,652/(139.6956522/100) = 100,000,000 Bonds Repo interest to be paid to the customer: 139,695,652 * (14 days/360 days) * 1.58% = $85,835.22 Flow 1 Nov 2002

15 Nov 200 2

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A Reverse Repo Transaction in Detail

Barclays Capital purchases securities versus a transfer of cash with a simultaneous agreement to resell the same securities at a future date. The securities are valued at the current market price plus all accrued interest to date. At the termination of the Reverse Repo, the securities are resold at the original principal value (market price + accrued interest, plus Repo interest). The price of the security remains the same for the term of the trade. All coupon interest which accrues during the term of the transaction is paid to the original seller of the securities. Example A customer has 125,000,000 of US Treasury 5 year note, 4 3/8 15 May 2007 to loan to the next refunding date which is 15 August 2002 hence the Repo trade will have a duration of 72 days (4 June 2002 to 15 August 2002). Barclays Capital quotes a Reverse Repo rate of 1.20%. Calculation Current Market Price Accrued Interest as of 4 June 2002 All in Price* 100.26228 0.23772000 100.50000

*When quoting a dollar price in the Repo market it will always be quoted as an all in price which is the current market price of the bond + accrued interest up to and including that date.

Cash provided by Barclays Capital = Nominal amount * (all in price)/100) = 125 million bonds * 100.50000/100 = USD 125,625,000

Flow 4 June 200 2

15 August 200 2

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Sell and Buy-Backs (Dollar Roll)

Some market participants are precluded from entering Repurchase Arrangements. This may be due to regulatory and tax restrictions, individual corporate bylaws, an accounting system better suited to booking spot and forward trades, or the inability to administer mark to markets and/or substitutions of collateral. Since our business is customer driven, Barclays Capital will accommodate these accounts by entering into separate Sale and Buy trades in certain circumstances. With the introduction of the Capital Adequacy Directive in Europe, Sell and Buy-Back trades with European customers are moving more towards transactions under a legally binding agreement and we have sample boiler plate documentation that we can make available to clients. The Bank of England and the US Federal Reserve Bank have stated the necessity of trading with Repo Agreements when dealing in financing and transacting in the debt of those markets. Buy Sell-Backs are permitted in those markets but require appropriate documentation be put in place to govern the transaction. It is Barclays policy to transact Buy-Sell Back transactions only after appropriate documentation has been executed. Sell/Buy-Backs differ from Repo in the following ways: Transactions are actually two separate trades without characteristics which point to a secured loan. Both the Sale and the Buy trades are entered into at the same time, i.e., spot and forward using an investment rate to derive the forward price. Excess margin is generally not provided by the cash borrower. The lender of cash receives title to the securities while also becoming the owner (the concept of beneficial ownership retained by the cash borrower does not apply). Borrower of cash does not have the right to substitute collateral unless explicit in original terms of trade. Sales and repurchase prices differ. Sale price is the market price, and the buy price is the original market price plus or minus the difference between the securities coupon rate and the agreed upon financing rate. Master repurchase agreements are not executed unless one is selecting to engage in documented Sell/Buy-Backs. Accrued interest and coupon payments belong to the lender of cash (holder of title), although the Forward Price would adjust for any payments made during the term of the trade. Buy/Sell-Backs and Sell/Buy-Backs trades in the US are commonly referred to as Dollar Rolls.

Exact figures on the percentage of financing trades executed in this fashion are not available, but the market is estimated to be a small percentage of the US domestic financing market. It is estimated, however, that nearly one third of the offshore international financing transactions are executed on Sell and Buy-Back basis. This has diminished over the last few years due to the growing acceptance of the Global Master Repo Agreement (GMRA).

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A Sell/Buy Back Transaction in Detail

Barclays Capital sells for a specific period of time with a simultaneous agreement to buy back the same securities at a future date for a price which is calculated to reflect the implied rate of return (Repo Rate). The securities are valued at the current market price plus accrued interest to settlement date. At the termination of the Sell/Buy-Back transaction, the securities are bought back by Barclays Capital at the predetermined price. Example A customer has EUR 50,737,985 to invest from 15 May 2002 to 17 June 2002. Barclays Capital will provide an Italian Government Bond BTPS 4% due 15 July 2004 as collateral and quotes a Repo rate of 3.25%; hence the customer will earn Repo interest of EUR 151,156.91. Calculation Pricing the Sell transaction for 15 May 2002 Current clean market price 100.15 Accrued interest as of 15 May 2002 1.32597 All in price* 101.47597 Nominal bonds provided by Barclays Capital = investment amount/(all in price)/100) = 50,737,985/(101.47597/100) = 50,000,000. Calculating the sell price All in price = (investment amount/nominal amount) * 100 = 50,737,985/50,000,000 * 100 = 101.47597 All in sell price = all in price accrued interest to 15 May 2002 = 101.47597 1.32597 = 100.15 Pricing the Buy-Back transaction for 17 June 2002 Financing interest to be paid to the customer = 50,737,985 * (33 days/360 days) * 3.25% = DEM 151,156.91 All in price = (investment amount + Repo interest/nominal amount). 100 = 50,737,985 + 151,156.91/50,000,000*100 = EUR 101.7782838 Minus accrued interest as of 17 June 2002 1.6906100 Buy-Back Price Clean 100.087674 Thus Barclays Capital buys back 50,000,000 bonds at a clean price of 100.087674
* Prices used in Sell/Buy-Back transactions are quoted on a clean basis. In other words, this financing transaction more closely mirrors the settlement of the bond in the cash market. So the bond will settle with the cumulative Repo interest to date (mirroring the money settlement of a Repo). The real difference in a Sell/Buy-Back is the calculation of the clean price on the Buy Back of the forward side of the trade.

Flow 15 May 2002

17 June 2002

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A Buy/Sell-Back Transaction in Detail

Barclays Capital purchases securities for a specific period of time with a simultaneous agreement to sell back the same securities at a future date for a price which is calculated to reflect the implied rate of return (Financing Rate). The securities are valued at the current market price plus accrued interest to settlement date similar to the way a bond would settle in the cash market. At the termination of the Buy/Sell Back, the securities are sold back to the customer at the pre-determined price which is calculated using the current price and financing rate. Example A customer has a US Agency Security (FHLMC 6.25% 03/12) to go for two months starting 4 June 2002 and ending 5 August 2002. Barclays Capital quotes a Financing Rate of 1.75%. Calculation Pricing the Buy Transaction for 4 June 2002 Current market price Accrued interest as of 4 June 2002 Price used to calculate total consideration 101.436468 1.5451388 102.981607

Cash provided by Barclays Capital = nominal amount * (all in price/100) = 100,000,000 Bonds * (102.981607/100) = USD 102,981,606.89 Pricing the Sell-Back Transaction for 5 August 2002 Financing interest to be paid by the customer = 102,981,606.89 All in price = all in buy price + Repo interest = 103.291982 102,981,606.89+310,375.12=103,291,982.01/100,000,000*100=103.291982 Minus accrued interest as of 8 August 2002 2.604167 Sell-Back Price 100.687815 Thus, Barclays Capital sells back 100 million bonds at a trade price of 100.687815 Flow 4 June 2002

8 August 2002

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Securities Lending
Background Whereas Repo are executed exclusively versus cash, the loan of securities can be transacted versus three types of collateral: cash, securities or letters of credit. The borrowed securities are valued at the current market price plus all accrued interest to date (where applicable). At the termination of the loan, these securities are returned at the original principal value plus a securities fee (for non-cash collateral) or rebate (for cash collateral). The lender of the securities retains incidence of ownership, receives all coupon interest on dividends paid and benefits from any corporate actions taken during the term of the loan. Cash is by far the most common form of collateral, accounting for about 95% of outstanding loans. In securities loan versus cash the dealer puts up cash and may give reverse margin. Dealers provide reverse margin as an enticement to institutional investors to lend issues. They receive a rebate on these funds, meaning that the securities lender/agent pays the dealer a stated return on these funds. The advantages of Securities Lending for the customer Securities Lending (security holders) Enhance yield. Earn incremental income. Maximize portfolio returns.

The advantages of Securities Lending for the broker/dealer s Securities Lending Cover short positions. Facilitate matched-book and cash trading. Reduce fails. Increase operational efficiency.

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Securities Lending Transactions in Detail

Generally, there are three types of Securities Lending Transactions: 1. Borrow versus Cash Term (Bonds) 2. Borrow versus Cash Open Basis (Bonds) 3. Borrow versus Pledge of Securities (Bonds) The following examples help describe the economics of each Example 1 Borrow versus cash Term (Bonds) Barclays Capital wants to borrow 11,000,000 Ford 6% 02/05 denominated in Euro 22 July 2002 to 22 Aug 2002. Barclays Capital will accept a rebate rate of 2.25% and provide Euro cash as collateral. Calculation Current Market Price Accrued interest as of 22 July 2002 All in Borrow Price 102.402740 2.59726 105.00

Rebate interest to be paid by the customer = 11,550,000 * (31 days/360 days) * 2.25% = EUR 22,378 Flow 22 July 2002

22 August 2002

Example 2 Borrow versus cash Open Basis (Bonds) Suppose Barclays Capital is short the current US Treasury 5 year note, and must borrow the issue to meet delivery obligations. With general collateral government Repo trading at 1.75%, a Security Lending agent bank on behalf of an underlying institutional investor offers 50 million of the 10 year note, which in this case is the US Treasury Note 4 3/8 05/07, to Barclays Capital against cash collateral, with a rebate of 0.65% and an open maturity date. Through
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a simultaneous delivery of cash for securities, the lending agent obtains cash, and immediately invests the money in a government Tri-Party Repo on an open basis. The lending agent would generate a 110 basis point spread on the trade, which it would share with the institutional investor based on their lending agreement. Since the trade was executed on an open basis, both parties may terminate the transaction the next day, or renegotiate the terms. The next morning, demand is slightly less to borrow the current long bond, so the lender/agent offers the issue at a rebate of 1.00. US government general collateral is still trading overnight at a rate of 1.75% This negotiation continues on a daily basis (agreeing on some days to leave unchanged) and is closed out by one of the counterparties 12 days later as shown in the example below. The lender/agent can lock in the spread between GC and the special rate reinvesting in delivered Repo or they can alternatively opt for Tri-Party Repo collateralized with other types of collateral, such as TIPS/Agencies or Corporates at a 3 and 8 basis point yield enhancement over US Treasury or sovereign debt security Repo. Calculation Current market price as of August 16 Accrued interest as of August 16 All in Borrow Price 100.727678 1.1056386 101.8333166

Rebate interest calculation 16-19 August 2002 Agreed rebate rate (weekend) .65% 19 August 2002 Negotiated new rate 1.00% 20 August 2002 Negotiated new rate .75% 24 August 2002 Negotiates new rate .80% 28 August 2002 Trade closed out 9.15% Average Rebate Rate (9.15%/12 Days) .7625

Rebate interest to be paid by the customer = 50,916,658.30* (12 days/360 days) * 76.25 bps (.007625) = USD 12,941.32 * Assumes 100% collateralization no haircut Flow 16 August 2002

28 August 2002

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Example 3 Borrow versus Pledge of Securities (Bonds) Barclays Capital wants to borrow 100mm German DBR 4 3/4 4 September 2008 and will pledge the Italian Government Bond BTPS 4 1/2 May 2009. Barclays Capital is willing to pay a borrow fee of 30 basis points for two weeks. For ease of settlement, both the borrow and the pledge will settle versus cash but the cash amount will be identical. Calculation of the Collateral Value Required Current market price of the DBR 4 3/4 4 Sep 2008 Accrued interest as of the All in Borrow Price 100.67 0.6246575 101.2946575

Value of the collateral required = Value of the bonds borrowed (100,000,000 * 101.2946575/100 = 101,294,657.50) Calculation of the Nominal Amount of the Pledge Current market price BTPS 4 1/2 May 2009 Accrued interest as of All in Pledge Price 99.95 1.36957 101.31957

Nominal bonds required = value of the bonds borrowed/(pledge price/100) = 101,294,657.50/(101.31957/100)=99,975.412. The nominal amount for the pledge should be rounded up to the nearest 10,000, hence the nominal amount would be 99,980.000 Calculation of the fee payment Fees payable = trade value amount of bonds borrowed * (# days borrowed/360 days) * borrow fee = 100 million * (14 days/360 days) * .003 = EUR 11,666.67 Barclays Capital will return the pledged securities versus, the original amount + fees (101,294,657.50+11,666.67=101,306,323.17) Flow 21 August 2002

4 September 2002

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Guidelines for Investing in Repo

The economic benefits of financing transactions can be substantial for the lenders of cash. The risk/reward analysis is greatly in favor of the investor when the business is done prudently. Here are a few general suggestions to consider when entering this market: 1. Know your counterparty Evaluate customer credit worthiness to ensure a high degree of safety. Only deal with reputable firms.

2. When possible, accept delivery of collateral Transfer collateral to your custody account through a Tri-Party or DVP transaction. If absolutely necessary, take physical possession of securities. Only execute segregation Repo with well capitalized, reputable dealers.

3. Maintain proper margin Maintain proper margin by marking to market collateral when necessary. Enter into Tri-Party agreements when possible to provide for facilitated margin maintenance.

4. Obtain proper documentation Execute a master repurchase agreement with all counterparties where possible (this is absolutely necessary for the trading in the US, UK, and all Emerging Markets Repo). Receive trade confirmations and telexes on a timely basis. If transacting Sale/Buy-Back arrangements (spot and forward trades), obtain timely confirmation of both sides of the trade at its inception.

5. Ensure accurate pricing of collateral Always use full-accrual pricing (which includes accrued interest). Use current market prices in all transactions. When possible, independently confirm prices to ensure proper collateralization.

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Collateral Types
The following is a list of countries and collateral types that are traded in Repo. We have not listed every country and are not limited to dealing in only these currencies. Australia Australian Government and semi-government bonds Canada Government Guaranteed bonds and bills only EEC All EC sovereign debt excluding Greece and Portugal, Supranational to include EIB, IBRD, EEC,EBRD, Eurofima Council of Europe Emerging Market Repo Government and Corporate Debt Euro All 12 Euro Countries Bills, Notes & Bonds Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain Japan Clean JGB only, Euroyen New Zealand New Zealand Government Bonds US T-Bills, Notes, Bonds, Strips, Agencies, GNMA, Remics, AA Pass Throughs UK Gilts, Eurosterling Corporate Bonds All Currencies

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Tri-Party Repo
What is Tri-Party Repo? A Tri-Party Repo puts a dealer, cash lender and third party custodian bank together to enter into a Tri-Party arrangement in which the custodian bank acts as intermediary in the Repo transaction between the cash investor and Barclays Capital. These Repo are governed by a separate legal agreement executed by all three parties. This agreement outlines the responsibilities of each party and the procedures for the day-to-day transactions. Procedures for Tri-Party Repo A cash investor shops around the market looking for the competitive Repo Rate for their Tri-Party investment. The rate on these third party Repo investments will be dependent on the collateral the investor is willing to accept. eg. A counterpart willing to take governments only may receive a quote of Fed Funds Flat on an over night investment. However, if the collateral acceptable is expanded to include TIPS, Agencies, and Corporates. They could see a return of Fed Funds + 5-7 basis points. Custodian receives money from the lender and securities from the dealer. The bank then credits the dealers cash account while simultaneously moving collateral to the cash lenders custody account. Collateral actually moves from the dealers clearing account to the cash lenders custody account within the bank. The cash lender actually possesses collateral in its custody account at the custodian bank. Custodian usually prices collateral using an outside pricing service. Almost always, the custodian bank in a Tri-Party arrangement is the dealers clearing bank. Since the collateral moves within the same bank, the dealer only pays an internal transfer fee, not a more costly depository transfer fee. Outstanding Tri-Party Repo collateral is marked to market by the bank to ensure proper margining as collateral values fluctuate. Cash lenders can ascertain which specific securities are being held in their custody accounts later that day. Custodian bank also mails hard-copy confirmations detailing collateral for all Tri-Party transactions. Cash lenders receive slightly higher yields on Tri-Party versus DVP Repo due to the slightly lower cost of settlement and flexibility or the trade for the dealer, as well as a reduced likelihood of a day light overdraft in the dealers account when trades mature.

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How Does a Tri-Party Repo Work?

A Tri- Party pictorial Start Date 1. The Broker Dealer and customer trade. 2. The customer wires money to their account at the third party agent (custodian bank or clearing house). 3. Barclays Capital instructs the agent to move securities from its account to the Tri-Party customer collateral account. 4. The customer instructs the agent to move funds from its account to Barclays Capitals account. 5. After the third party agent values the security and verifies that the collateral is within the agreed parameters, the agent will then simultaneously move the securities into the customers account and release the funds to Barclays Capital account. 6. The agent and Barclays Capital will send a collateral confirmation to the customer.

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Advantages of Tri-Party Repo Flexibility customers can choose the specific types of collateral acceptable to them, define the margin required and outline the daily reporting requirements. Security the third party custodian handles all aspects of collateral management, including the daily mark to market function and any resulting margin calls. The custodian always ensures that there is complete segregation of collateral into the investing customers account. Efficiency the operational flows become streamlined with regard to settlements and cashflows. Cost effectiveness the Tri-Party arrangements result in the elimination of delivery/receive transaction costs to the investing customer. Barclays Capital will incur the costs of the customers accounts at the Tri-Party bank. This results in the overall reduction of costs to the investing customers.

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Summary of Product Features

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GLOSSARY
Accounting T reatment A trade executed for a fixed period of time. The counterparties agree to and fix the rebate rate, quantity of securities and trade duration at the onset of the trades. Agent A party to a loan transaction that acts on behalf of a client. The Agent does not typically take risk in a transaction. All-in Price Market price of a bond plus accrued interest. Approved Borr ower A borrower that has been formally approved by the UK Inland Revenue to transact overseas Securities Lending activity through the UK. Basis Point One one-hundredth of one percent (.0001 or .01%). Bearer Securities Securities that are not registered to any particular party on the books of the issuing company and hence are payable to the party that is in possession of them. Buy-in The practice of a lender of securities entering the open market to buy securities to replace those that have not been returned by a borrower. Strict market practice governs Buy-Ins. Buy/Sell Sell/Buy Types of bond transactions that in economic substance replicate Reverse Repo and Repo, respectively. These transactions consist of a purchase (or sale) of a bond versus cash with a forward commitment to Sell-Back (or Buy-Back) the securities. Used as an alternative to Repo/Reverse-Repo. There is now a special annex to the standard Repo agreement for Buy/Sell-Back trades. This annex provides for margining Buy/Sell-Back transactions. Carry Difference between interest return on securities held and financing costs. Negative carry: Net cost incurred when cost of carry exceeds yield on securities which are being financed. Positive carry: Net gain earned when cost of carry is less than yield on financed securities. Collateral Securities or cash delivered by a borrower to a lender to support a loan of securities or cash. Custodian An entity such as Euroclear, Cedel or Bank of New York that holds securities of any type for investor, effects deliveries, and supplies appropriate Reporting. Delivery Securities are delivered physically to the counterpartys custodian bank. These are typically done versus payment. Distribution Entitlements arising on securities that are loaned out eg dividends, interest and non-cash distributions.

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DVP Delivery versus payment, or the simultaneous delivery of securities against the payment of funds. ERISA The Employee Retirement Income Security Act, a US law governing private US pension plan activity, introduced in 1974 and amended in 1981 to permit plans to lend securities in accordance with specific guidelines. Fail The failure to delivery cash or collateral for settlement. In certain jurisdictions this may result in heavy fines or license suspension. General Collateral (GC) Securities that are not special (see definition p. 26) in the market and that may be used, typically, simply to collateralize cash borrowings. Also called stock collateral. Global Master Repurchase The market standard Repo document used by non-dollar Agreement (GMRA) Repo practitioners. The GMRA is based on the US PSA Master Repurchase Agreement, was introduced in November 1992 and subsequently updated, and is endorsed by the PSA and ISMA. Haircut Initial margin in a Repo transaction. Generally expressed as a percentage of the market price. Hold-in-Custody (HIC) Borrower of cash segregates collateral in a specific Repo internal account for the cash lender, rather than delivering out collateral. Initial Margin The amount by which the market value of the collateral in a trade exceeds the amount of underlying cash or securities lent. ISMA The International Securities Market Association is an organization of international bond dealers and maintains offices in Zurich. ISMA is the industry group that sets standards of business conduct in the fixed income securities market, advises regulators on market practices and provides educational opportunities for industry participants. Legal Documentation Separate agreements exist for Repo Buy/Sell-Back and Securities Lending. Counterparties should enter into one form of agreement or another in order to address issues regarding default, confirmation, definitions, processing, etc. Please contact the Barclays Capital representative in your region to obtain the necessary documentation. Manufactured Dividends When securities that have been lent out pay a cash dividend, the borrower of the securities is generally contractually obligated to pass on the distribution to the lender of the securities. The payment pass through is known as a manufactured dividend.

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Margin Variation Once the Repo or Securities Lending transaction has settled, the margin variation refers to the band within which the value of the securities used as collateral may fluctuate before triggering a margin call. Variation margin may be expressed in either percentage or absolute currency terms. The GMRA states that all legitimate requests for variation margin must be honored. Mark to Market The act of revaluing the security collateral in a Repo Securities Lending transaction to current market values. This may be done daily or at a suitable interval agreed upon by the parties to a transaction. Market Value The value of securities or collateral as determined using the last (or latest available) sale price on the principal exchange where the instrument was traded, or if not so traded using the most recent bid and offered prices. Matched/Mismatched Book Refers to the interest rate arbitrage book that a Repo trader may run. By matching or mismatching maturities, rates, currencies or margins, the Repo trade generates a P & L. Open demand transactions Repo and Securities Lending trades that can be closed out by either counterparty at anytime, giving the sufficient amount of notice for standard settlement in that market. Principal A party to loan transaction that acts on its own behalf or substitutes its own risk for that of its client when trading. PSA The Public Securities Association is a US-based industry organization of participants involved in certain sectors of the bond market. The PSA established non-binding standards of business conduct in the fixed income securities market and advises regulators and others on market practices. Rebate Rate The interest rate paid on the cash side of a Securities Lending transaction. A rebate rate of interest implies a fee for the loan of securities. Recall A request by a lender for the return of securities from a borrower. Repo Transaction whereby one party sells securities to another party and simultaneously agrees to repurchase the securities at a future date at a fixed price. Used to generate funding or to increase yield on an investors long securities positions. Repo Rate The interest rate paid on the cash side of a Repo/reverse transaction. Repricing Occurs when the market value of a security in a Repo or Securities Lending transaction changes and the parties to the transaction agree to adjust the amount of securities or cash in a transaction to the correct margin level.

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Return Occurs when the borrower of securities returns them to the lender. Reverse Repo Transaction whereby one party purchases securities from another party and agrees to resell the securities at a future date at a fixed price. Typically used when the party which is long cash is providing funding to another counterparty or when a party needs to borrow a security in order to cover a short position. Roll To renew a trade at its maturity. Safekeeping In Repo and Sell/Buy-Back transactions when a counterparty does not wish to take delivery, securities can be moved into a segregated account at a Barclays Capital clearing agent. The securities are held on the books and records of Barclays Capital on the customers behalf. Each transaction is confirmed by telex or facsimile. Securities may be substituted daily and with each substitution, a new telex or facsimile is generated. Stock Borr ow and Loan Committee (SBLC) A UK based committee of international lending market practitioners chaired by the Bank of England and administered by the London Stock Exchange. Settlement Repo and Securities Lending are typically transacted on a two or three day forward basis. Standard delivery instructions for the various currencies are used. Counterparties should agree to the settlement instructions on each individual trade. Specials Securities that, for several reasons, may be sought after in the market by borrowers. Holders of special securities will be able to earn incremental income on the securities by lending them out via Repo, Sell/Buy or Securities Lending transactions. Spot Standard non-dollar Repo settlement, two business day forward. Substitution The ability of a lender of general collateral to recall it from the borrower and replace it with other securities of the same value. Term Transaction A trade that goes on for a determined period of time. Tri-Party Repo Repo used for funding/investments purposes in which bonds and cash are delivered by the trading counterparties to an independent custodian bank or clearing house (the Tri-Party Custodian) that is responsible for ensuring the maintenance of adequate collateral value both at the outset of a trade and over its term. The Tri-Party Custodian marks the collateral to market daily and makes margin calls on either counterparty, as required. Tri-Party Repo reduces the operations/systems barriers to participating in the Repo market.

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This publication has been prepared by Barclays Capital (Barclays Capital) - the investment banking division of Barclays Bank PLC. This publication is provided to you for information purposes only. Prices shown in this publication are indicative and Barclays Capital is not offering to buy or sell or soliciting offers to buy or sell any financial instrument. The information contained in this publication has been obtained from sources that Barclays Capital believes are reliable but we do not represent or warrant that it is accurate or complete. The views in this publication are those of Barclays Capital and are subject to change, and Barclays Capital has no obligation to update its opinions or the information in this publication. Barclays Capital and its affiliates and their respective officers, directors, partners and employees, including persons involved in the preparation or issuance of this document, may from time to time act as manager, co-manager or underwriter of a public offering or otherwise, in the capacity of principal or agent, deal in, hold or act as market-makers or advisors, brokers or commercial and/or investment bankers in relation to the securities or related derivatives which are the subject of this publication. Neither Barclays Capital, nor any affiliate, nor any of their respective officers, directors, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. The securities discussed in this publication may not be suitable for all investors. Barclays Capital recommends that investors independently evaluate each issuer, security or instrument discussed in this publication, and consult any independent advisors they believe necessary. The value of and income from any investment may fluctuate from day to day as a result of changes in relevant economic markets (including changes in market liquidity). The information in this publication is not intended to predict actual results, which may differ substantially from those reflected. This communication is being made available in the UK and Europe to persons who are investment professionals as that term is defined in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion Order) 2001. It is directed at persons who have professional experience in matters relating to investments. The investments to which it relates are available only to such persons and will be entered into only with such persons. Barclays Capital - the investment banking division of Barclays Bank PLC, authorised and regulated by the Financial Services Authority (FSA ) and member of the London Stock Exchange. BARCLAYS CAPITAL INC. IS DISTRIBUTING THIS MATERIAL IN THE UNITED STATES AND, IN CONNECTION THEREWITH, ACCEPTS RESPONSIBILITY FOR ITS CONTENTS. ANY U.S. PERSON WISHING TO EFFECT A TRANSACTION IN ANY SECURITY DISCUSSED HEREIN SHOULD DO SO ONLY BY CONTACTING A REPRESENTATIVE OF BARCLAYS CAPITAL INC. IN THE U.S., 200 Park Avenue, New York, New York 10166. Non-U.S. persons should contact and execute transactions through a Barclays Bank PLC branch or affiliate in their home jurisdiction unless local regulations permit otherwise. * Copyright Barclays Bank PLC (2002). All rights reserved. No part of this publication may be reproduced in any manner without the prior written permission of Barclays Capital. Barclays Bank PLC is registered in England No. 1026167. Registered office 54 Lombard Street, London EC3P 3AH. Additional information regarding this publication will be furnished upon request.

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CONTACTS
London Corporates: 44 207 773 8497 Governments: 44 207 773 9203 5 The North Colonnade Canary Wharf London E14 4BB New York Corporates: 212 412 2190 Governments: 212 412 6810 200 Park Ave 5th Floor New York, NY 10166 Tokyo 81 3 5255 0420 15F Urbannet Otemachi Building 2-2-2 Otemachi Chiyoda-ku Tokyo 100 Internet www.barcap.com

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