PBGC_RFP_16PBGC25R0050_Attachment_6_-_Phase_II_Securities___Lending_Questionnaire.pdf

Attachment 6 – Phase II Securities and Lending Questionnaire Custodian Banking Services Request for Proposal No. 16PBGC25R0050

Organization

1. Provide an organizational chart for your securities lending and cash collateral management teams.

2. Where is your securities lending department headquartered? Where do you have additional lending desks and what functions are performed from each of these sites?

3. List your, and if applicable, your parent company's total revenue from securities lending.

What percentage of your firm or your parent company's total revenues did securities lending represent for each of the last 5 years?

4. Is there any pending litigation or regulatory action with respect to the securities lending program? Please state whether cases have been filed, whether they are class actions, identify the plaintiffs making the complaints, and provide, if possible, a summary of the claim.

Clients

1. In aggregate, what is the total number of clients and the total on loan balance as of December

31, 2023?

2. What are the number of principal clients and agent lending clients in your business? List the percent breakdown, number of each client type, and lendable assets for each year from 2019-2023 for the following groups:

i. Non-Affiliated Lending with Custody

ii. Non-Affiliated 3rd Party Lending (No Custody)

iii. Affiliated Lending

Lending Program Profile

1. Describe your lending philosophy.

2. What are your organization’s security lending competitive advantages? For which asset classes and/or program types do you feel your organization has the greatest competitive advantages/disadvantages? Be specific.

3. Explain how you are able to negotiate the most favorable rates on loans for clients.

4. What is the primary form of lending your firm offers - agent, principal, or both? Describe.

Identify the portion of overall securities lending revenue that is derived from agency lending and principal lending.

5. Will you act as a full ERISA fiduciary for PBGC? Are there any parts of the lending program that you carve-out from the fiduciary responsibility?

6. Describe your parent/affiliate organization's position in the prime brokerage or arbitrage business (if applicable).

7. Do you lend to affiliated entities? What is your process for ensuring all affiliated transactions are done at arm's length? What assurances can you provide to clients that they receive best execution if loans are made to affiliated borrowers? Do you have a third party audit this process on a regular basis? If so, are the results available to clients?

8. Please provide the information below for each year as of December 31 from 2020-2023.

9. Discuss how your firm manages potential borrower concentration issues. Does your firm have an internal limit on how much of a client’s lendable assets can be lent to a single borrower on any given day? What is the exposure limit? Is it possible that a single client can be exposed to a single borrower at any given time?

10. What percentage of your clients have implemented an intrinsic value program?

How do you see this evolving over the next 3 to 5 years?

11. What securities are accepted as collateral for loans (i.e. cash, Treasuries, etc.)? Are the securities held by the custodian? Please comment.

12. Describe in detail your firms mark to market procedure, and detail the timing, frequency and at what level is this activity is performed (i.e. security, account and or borrower)? Do you mark to market cash loans differently than non-cash loans? If so, please describe each process.

13. Please describe what mechanism you use to settle non-cash collateral (tri-party, bilateral)?

What percentage of your non-cash collateralized loans are vs. tri-party and bilateral?

14. How much non cash collateral is accepted (as a % of total collateral) in the accounts that permit the use of non-cash collateral?

15. Describe in detail your loan allocation process for both general collateral and specials and include how you ensure there is equitable distribution across your client base. Is this process transparent to the end client? What type of exceptions occurs? What internal escalations or oversight is in place to review exceptions?

16. What is your process and criteria for re-rating loans? Is this process conducted at a security level (program wide) or client level? What is your firm’s policy for monitoring the profitability of individual loans for each client?

17. How are claims related to sale fails handled? How are the claims settled?

18. What changes did your firm implement to the securities lending program because of the financial crisis of 2008 and the pandemic period including 2020? Please describe any other changes that have been made to your securities lending program in the past 5 years.

19. For all clients with over $5 Billion in lendable assets, please provide the average revenue split for the following lending agreement categories:

i. Indemnified clients

ii. Non-indemnified clients

iii. All Clients

Borrower Selection and Credit Analysis

1. Does the securities lending group have a dedicated credit analysis team or are the credit analysts part of a larger pool within your organization? Please describe.

2. What are your procedures for selecting and monitoring borrowers? How often are borrower creditworthiness and credit limits reviewed?

3. Provide a list of approved borrowers within your program, and their current credit rating. List separately the borrowers domiciled within the US and outside the US. Also, identify the top ten borrowers and the percentage these borrowers represent of the total program.

4. Describe the loan termination process and the safeguards in place to protect the client in the event of a borrower default or termination for other reasons.

Indemnification and Risk Management

1. Do you offer indemnity against borrower default? What entity is responsible for providing the indemnification?

2. How many and what percentage of your clients are you indemnifying against borrower default? What was the dollar value of their outstanding loan amounts as of 12/31/22 and 12/31/23?

3. Does providing indemnity against borrower default have an impact on the fee split with the client?

4. What is the scope of your indemnification coverage? What will it cover and what will it not cover? Please describe in detail any scenarios where you will not reimburse a client for losses. Be sure to address the following:

(a) Borrower files for bankruptcy for whatever reason.

(b) Failure to recall securities before settlement date.

(c) Failure to secure additional collateral and margin requirements.

(d) Failure to receive dividends, distributions, and all economic benefits of ownership.

(e) Immediate use of Non-Cash Collateral in lieu of Borrower Bankruptcy.

5. Is your organization able to provide for total or partial collateral investment risk indemnification? Does your organization have clients with such arrangements? If so, please describe.

6. Has your organization experienced any losses due to operational negligence or broker default since the inception of your securities lending program? Describe. What was the recourse provided to clients and the level of dialogue to explain (resolve) the issues?

Cash Collateral

1. Please provide a description of your short-term asset management capabilities.

2. Is the cash collateral portfolio management team dedicated to securities lending or part of a separate cash management team?

3. Who is responsible for credit research at your organization? How are credits monitored and what actions are taken after credit downgrades?

4. Describe in detail the performance of your cash collateral portfolios beginning in 2019. Were there any withdrawal limitations, defaults, etc.? Did any of your clients incur losses? Explain.

Did your firm reimburse clients? Explain.

5. Clearly state the gating and redemption procedures your firm instituted, enhanced, or codified regarding client’s rights regarding securities lending exit or withdrawal from the program.

6. If unrealized losses or highly illiquid vehicles exist in your program, will the PBGC end-up owning a slice of the losses if they select your program? How is your firm going to protect the PBGC and not subject the PBGC to both realized and unrealized losses going forward?

7. Provide the investment guidelines for each of the cash collateral reinvestment funds available to program participants. Include a description of the funds and note whether they are registered 2a-7 funds. Are separately managed collateral reinvestment funds available to participants and if so, may participants provide their own unique investment guidelines?

8. For repurchase agreements, please list all acceptable collateral.

9. Are fees for cash collateral reinvestment deducted from the earnings remitted to the client before or after the earnings split?

Reporting Capabilities

1. Identify and describe the various internal and client facing tools or systems used to support your securities lending program and explain how they are linked and accessed by the client.

2. When will monthly or quarterly standard client reports be available to the client? Include samples of standard reports that are available. Attach separately to Volume 2 and label accordingly.

3. What benchmarking practices do you use and to what extent would this be shared with the client? Please attach a sample report if applicable.