Contractual Arrangements Participants should never transact in the Securites Lending Market without relevant legal agreements. The most recognised agreements in the market are the OSLA, the ISDA, and the PSMA/ISMA. The Australian market uses a modified OSLA known as the Australian Master Securities Lending Agreement (AMSLA).
The above agreements outline the relationship and responsibilities of each counterparty and can be amended to cover securities lending in any market. Amendments are usually through riders or addendums attached to the original agreement.
The AMSLA is used for both agency and principle transactions. An Agent lends securities on behalf of the beneficial owner and does not take on any risk for the transaction, subsequently the counterparty risk lies with the beneficial owner and the borrower. In a principle transaction, although the lender may not be the beneficial owner, he takes on the risk associated with the loan to the borrower.
There is also a second type of agreement used in the market usually between custodians and their portfolio clients. This agreement authorises the custodian to lend the clients portfolio and may also outline counterparty and collateral policies.
