Securities lending for investment trust companies (KAGplus)

The KAGplus service enables investment trust companies such as undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) governed by the German Capital Investment Code (KAGB) and the Derivatives Regulation (DerivateV) to meet regulatory requirements on investor protection, while at the same time helping them to improve their yield through securities lending.

Securities lending is an attractive way for investment trust companies to increase the performance of their underlying funds. However, UCITS and AIFs regulated by German law need to respect limits regarding their lending activities and are required to put in place comprehensive collateral management capabilities for securities lending activities.

Clearstream is the Central Securities Depository (CSD) of Germany and as such it acts as a neutral securities lending and collateral management agent. It defines the legal structure and the economic rules for its combined securities lending and collateral management offering, KAGplus.

UCITS and AIFs that use KAGplus can obtain exemption from some of the legal requirements by complying with the CSD’s rules instead. KAGplus enables UCITS and AIFs to benefit from securities lending by providing them with an alternative, regulated market access, instead of them having to manage all the regulatory compliance themselves.

In addition to enabling UCITS and AIFs to perform securities lending to their counterparties of choice, the service brings operational relief, since Clearstream handles the matching, margining, collateralisation and reporting of securities lending transactions.