REPOS/Securities Lending? Know any books. etc. for better understanding?

Unknowing of what your prior securities lending knowledge may be, some of this may be rudimentary, but hopefully you find it helpful.

Securities lending and repos are incredibly similar in that they have somewhat of the same transaction structure. The borrowing party in a repo or sec lending transaction lends cash to the counter party in exchange for securities as collateral where as the lender borrows cash and posts securities as collateral. The fundamental difference between the transactions is two fold: economic purpose and legal contractual structure.

The reason a party borrows a security in a sec lending transaction is to cover a short position. When a hedge fund shorts a stock, their prime broker reaches out into the market place and locates the shares. After going back and forth between all lending contacts, they'll derive the best rate and borrow so they can deliver the stock into the buyer's portfolio. This differs from a repo transaction where the motivation is generally to borrow or lend cash.

In terms of legality, in a repo there is an outright sale of the securities accompanied by a specific price and date at which the securities will be bought back. On the other hand, securities lending transactions have no set end date (with the exception of div-arb trades) and no set price. The beneficial owner can recall the shares on loan at any time and the borrower can return the shares at any time. In regards to the price differential, the rebate rate (fee paid to or from the broker depending on demand for the security) can be re-rated at any time. In summary, securities lending transactions are much more flexible than repos and thus are better conducive in covering shorts where the position's profitability relies on pinpoint timing.

Due to the flexible nature of securities lending, general practice in the US requires the lender to reinvest the cash collateral in very liquid money-market instruments, generally earning something close to fed funds. The driver for this practice is that securities lenders mark to market, change rates, and lend/return shares daily. The cash collateral is flowing between the borrower and lender constantly. Anything outside of this practice adds significant risk to the owner's lending program (see CalPERS for example of what not to do with sec lending collateral.) International markets differ in that they usually hold fixed income securities as collateral. These securities must have the ability to be readily priced, absent of risk, and easily sold (tend to be govt. debt).

If you're looking for some intro literature, check out An Introduction to Securities Lending. It's written by the CEO of Data Explorers (well renowned in the industry), Mark Faulkner. It tends to be more insightful to international sec lending, but really does a good job at hammering out the basics in both markets. I work for an agent lender and this is the material they hand out to all new hires in training due to its simplicity. Like brotherbear, if you have any specific questions please post and I'd be more than happy to shed light.