Introduction to Lombard Lending

The Lombard Lending (OV) module handles real time valuation of portfolios as well as margin lending and calculation of buying power.

Margin lending is a type of loan that allows the user to borrow money to invest, by using the existing shares, managed funds, cash or the user's entire portfolio holding as security. It is a type of gearing, which is borrowing money to invest. The amount that can be borrowed depends on the loan to value ratio (margin rates) of the portfolio assets.

The module supports the margin lending workflow starting from a customer applying for a margin loan and specifying the assets he chooses to pledge, sanctioning of the same by the bank, creating a collateral with the assets pledged by the customer, creating a loan linked to the collateral and tracking the utilisation of the same.

It also calculates the buying power available to the customer when an order is placed.

The buying power summarises the liquidity of the portfolio. It offers a portfolio wide view of the amount available to invest and in that sense, more comprehensive than the cash flow validations which is based on the cash available to invest.

A customer who purchases securities may either pay for the securities in full or borrow part of the amount from the bank. The portion of the consideration that the customer pays is the customer’s equity. The buying power and eligibility is calculated on the basis of facility granted to the customer. While borrowing (as above), it has the potential to increase the returns, the losses can also potentially increase.

Margin calls are when due to falls in the market value of the portfolio the collateral value is less than the loan amount borrowed. This results in what is generally known as the margin call.

Lombard Lending Direct is a functionality where the entire portfolio is deemed to be available as margin for trades. This is an older functionality which has since been replaced by the margin lending functionality.

The real-time valuation is the automatic intra-day valuation of a portfolio based on triggers. The triggers are nothing but events that have an impact on the valuation of a portfolio. That is, any transaction or a static change that affects the portfolio value is a trigger for the valuation process. Based on these triggers, valuation is performed online for selected portfolios.

Product Configuration

The OV.PARAMETER which is the main configuration parameter for this module, has the settings for Real Time Valuation, Margin Lending and the old Lombard Lending functionalities. This is a company-level parameter for activating the online valuation based on triggers which hold the following details:

• Details of triggers excluded for valuation
• Rules governing buying power and margin trading.

The fields available in this parameter are listed below.

Field	Description
Online Val	Indicates whether automatic online valuation needs to be activated
Exclude Events.1	Events excluded during the online valuation process
Use Facility Application	Field to set if Margin Lending functionality is required or the old Lombard functionality is to be used
Priority Api	API to determine priority for online valuation

Illustrating Model Parameters

OV.PARAMETER is configured in the model bank. The model bank configuration is to use the new margin lending functionality. The model bank settings for fields is as below:

Field	Description
Online Val	This is set to Yes in Model Bank
Priority API	A core API called OV.PRIORITY.API is released. This checks if the trigger is a batch job or online job and handles valuation accordingly.
Use Facility Application	This is set to Yes in Model bank to ensure that Margin Lending functionality is used by default.

Illustrating Model Products

An AA lending product called Margin Loans is available and can be modified by clients or new products can be created as required.