I have some very technical questions about trade accounting where the custodian/prime accounts are either omnibus or where the fund's trade accounting contains internal strategy distinctions which are not visible to the street. Any suggestions appreciated, Steven
Can a Portfolio Manager elect to lend shares between accounts which have different beneficial ownership? How should a netted shorts participate in the collateral and costs of a loan? As I am sure that you well appreciate, the setup on these questions can be quite lengthy, but without it, one can easily misunderstand the context and provide inaccurate answers. This particular example is only to facilitate discussion. Please consider other possible situations as well as I am concerned with creating software to handle the general problem. Relationship Between Portfolio and Strategy Code: Account Structure Fund 1 Cash+Eq Cash Tgt Cash Class A 45% 9% 1% Class B 35% 3% 1% Class C 9% 2% 1% SMA 1 6% 1% 1% SMA 2 5% 1% 1% Total 100% Investment Targets Fund1 Fund2 Hedge 11% 1% Growth 20% 28% Balanc 29% 29% Value 35% 24% Fixed 14% 20% Current Assets (M) Fund1 Fund2 Hedge 26 2 Growth 49 85 Balanc 99 85 Value 97 61 Fixed 45 78 Curr Investment Distribution Fund1 Fund2 Hedge 8% 1% Growth 16% 28% Balanc 31% 27% Value 31% 20% Fixed 14% 25% Total 100% 100% Analyst Tags for Hedge Strategy Holdings in FB Group Long 20k Shares 20000 Joe Long 10k Shares 10000 Mark Long 20k Shares 20000 Adam Short 5k Shares -5000 Decorr Short 10k Share -6800 Net 38200 Now that we have some context about how the Investment House organizes its funds and advisers, let's postulate some holdings in Facebook. Here are some unimaginative orders to generate our holdings: Code: On 7/1, BEAR executes, Buy 19800 FB MKT gets avg fill of $30/share Custody Account Amount GSCO Omnibus 11700 MSCO Omnibus 8100 On 7/2, CITI executes, Buy 18400 FB MKT gets avg fill of $31/share Custody Account Amount GSCO Omnibus 8800 MSCO Omnibus 9600 Code: Fully Differentiated Holdings in FB: Facebook Asset Pos Fund Account Strat Analyst PDate CBasis TaxLot Amount Prime USD Long Fund1 ClassA Hedge 2.5E+07 DB USD Long Fund1 ClassA Hedge 5.0E+05 GSCO USD Long Fund1 ClassA Hedge 5.0E+05 MSCO FB Long Fund1 ClassA Hedge Group 1-Jul 30 101 10000 GSCO FB Long Fund1 ClassA Hedge Group 1-Jul 30 101 7000 MSCO FB Long Fund1 ClassA Hedge Group 2-Jul 31 102 1000 GSCO FB Long Fund1 ClassA Hedge Group 2-Jul 31 102 2000 MSCO FB Long Fund1 ClassA Hedge Joe 1-Jul 30 101 7000 GSCO FB Long Fund1 ClassA Hedge Joe 1-Jul 30 101 3000 MSCO FB Long Fund1 ClassA Hedge Mark 2-Jul 31 102 10000 GSCO FB Long Fund1 ClassA Hedge Mark 2-Jul 31 102 10000 MSCO FB Long Fund1 ClassA Hedge Adam 1-Jul 30 101 -4000 GSCO FB Long Fund1 ClassA Hedge Adam 1-Jul 30 101 -1000 MSCO FB Long Fund1 ClassA Hedge Decorr 1-Jul 30 101 -1300 GSCO FB Long Fund1 ClassA Hedge Decorr 1-Jul 30 101 -900 MSCO FB Long Fund1 ClassA Hedge Decorr 2-Jul 31 102 -2200 GSCO FB Long Fund1 ClassA Hedge Decorr 2-Jul 31 102 -2400 MSCO Suppose that the PM for Port1 wants to Lend out 20k shares to raise some capital on 7/3 using oldest taxlots. Q. Can PM elect to lend shares between accounts which have different beneficial ownership? Code: Assuming Not Action Fund Account Amount Prime Advertise Fund1 ClassA 11400 GSCO Advertise Fund1 ClassA 8600 MSCO Suppose that counterparties are found and the full amount is loaned Code: Action Fund Account Rate CntPrty FinLot Amount Prime Lend Fund1 ClassA -0.5% Well 201 11400 GSCO Lend Fund1 ClassA -0.3% Well 202 8600 MSCO EOD account holdings Code: Custodian View Pos Prime Amount Long GSCO 20500 Long MSCO 17700 Lent GSCO 11400 Lent MSCO 8600 Q. How should to the netted shorts participate in the collateral and costs of a loan? Code: Administrator View Asset Pos Fund Account Rate FinLot Amount Prime USD$ Long Fund1 ClassA 25M DB USD$ Long Fund1 ClassA 500K GSCO FB Long Fund1 ClassA 20500 GSCO FB Lent Fund1 ClassA 11400 GSCO USD$ Collat Fund1 ClassA -0.50% 201 364800 GSCO USD$ Cost Fund1 ClassA -2.25% 201 -22.49 GSCO USD$ Long Fund1 ClassA 500000 MSCO FB Long Fund1 ClassA 17700 MSCO FB Lent Fund1 ClassA 8600 MSCO USD$ Collat Fund1 ClassA -0.30% 202 275200 MSCO USD$ Cost Fund1 ClassA -2.21% 202 -15.46 MSCO Code: Accounting View Asset Pos Fund Account Strat Analyst PDate Basis TaxLot Rate FinLot Amount Prime USD$ Long Fund1 ClassA Hedge 25M DB USD$ Long Fund1 ClassA Hedge 500K GSCO USD$ Long Fund1 ClassA Hedge 500K MSCO FB Long Fund1 ClassA Hedge Group 1-Jul 30 101 10000 GSCO FB Long Fund1 ClassA Hedge Group 1-Jul 30 101 7000 MSCO FB Long Fund1 ClassA Hedge Group 2-Jul 31 102 1000 GSCO FB Long Fund1 ClassA Hedge Group 2-Jul 31 102 2000 MSCO FB Long Fund1 ClassA Hedge Joe 1-Jul 30 101 7000 GSCO FB Long Fund1 ClassA Hedge Joe 1-Jul 30 101 3000 MSCO FB Long Fund1 ClassA Hedge Mark 2-Jul 31 102 10000 GSCO FB Long Fund1 ClassA Hedge Mark 2-Jul 31 102 10000 MSCO FB Long Fund1 ClassA Hedge Adam 1-Jul 30 101 -4000 GSCO FB Long Fund1 ClassA Hedge Adam 1-Jul 30 101 -1000 MSCO FB Long Fund1 ClassA Hedge Decorr 1-Jul 30 101 -1300 GSCO FB Long Fund1 ClassA Hedge Decorr 1-Jul 30 101 -900 MSCO FB Long Fund1 ClassA Hedge Decorr 2-Jul 31 102 -2200 GSCO FB Long Fund1 ClassA Hedge Decorr 2-Jul 31 102 -2400 MSCO FB Lent Fund1 ClassA Hedge Group 3-Jul 101 6706 GSCO FB Lent Fund1 ClassA Hedge Group 3-Jul 101 5670 MSCO FB Lent Fund1 ClassA Hedge Group 3-Jul 102 0 GSCO FB Lent Fund1 ClassA Hedge Group 3-Jul 102 83 MSCO FB Lent Fund1 ClassA Hedge Joe 3-Jul 101 4694 GSCO FB Lent Fund1 ClassA Hedge Joe 3-Jul 101 2430 MSCO FB Lent Fund1 ClassA Hedge Mark 3-Jul 102 0 GSCO FB Lent Fund1 ClassA Hedge Mark 3-Jul 102 417 MSCO USD$ Collat Fund1 ClassA Hedge -0.50% 201 365K GSCO USD$ Collat Fund1 ClassA Hedge -0.30% 202 275K MSCO USD$ Cost Fund1 ClassA Hedge -2.25% 201 -22.49 GSCO USD$ Cost Fund1 ClassA Hedge -2.21% 202 -15.46 MSCO Happy to provide these tables in Excel, but I am not sure that this is the most productive way to have this discussion. If there was a book or website that discussed these issues at this depth, that would be a perfectly satisfactory answer. Thanks.
Here are a few quotes/summaries from the FASB Guidance on offsetting 210-20-05-1 This Subtopic provides criteria for offsetting amounts related to certain contracts and provides guidance on presentation. It is a general principle of accounting that the offsetting of assets and liabilities in the balance sheet is improper except if a right of setoff exists. 210-20-45-1 A right of setoff exists when all of the following conditions are met: a. Each of two parties owes the other determinable amounts. b. The reporting party has the right to set off the amount owed with the amount owed by the other party. c. The reporting party intends to set off. d. The right of setoff is enforceable at law. 210-20-45-4 If a party does not intend to set off even though the ability to set off exists, an offsetting presentation in the statement of financial position is not representationally faithful. 210-20-45-5 Acknowledgment of the intent to set off by the reporting party and, if applicable, demonstration of the execution of the setoff in similar situations meet the criterion of intent. 210-20-45-11 A borrow and a lend offset if a. Same counterparty b. Same explicit settlement date c. Under a master netting agreement d. Must be strictly book-entry form security transfer e. Security transfer system must be a cash settlement on net amount due at EOD basis (support daylight overdraft) f. Must intend to use the same clearing bank g. Cannot mix repos with other types of positions