Why do securities lending

Develop and improve products. List of Partners vendors. Securities lending is the practice of loaning shares of stock, commodities, derivative contracts , or other securities to other investors or firms. Securities lending requires the borrower to put up collateral, whether cash, other securities, or a letter of credit.

When a security is loaned, the title and the ownership are also transferred to the borrower. A loan fee , or borrow fee, is charged by a brokerage to a client for borrowing shares, along with any interest due related to the loan.

The loan fee and interest are charged pursuant to a Securities Lending Agreement that must be completed before the stock is borrowed by a client. Holders of securities that are loaned receive a rebate from their brokerage. Securities lending provides liquidity to markets, can generate additional interest income for long-term holders of securities, and allows for short-selling.

Securities lending is generally facilitated between brokers or dealers and not directly by individual investors. To finalize the transaction, a securities lending agreement or loan agreement must be completed. According to current regulations, borrowers should provide at least percent of the security's value as collateral.

Collateral for securities also depends on its volatility. The minimum initial collateral on securities loans is at least percent of the market value of the lent securities plus, for debt securities, any accrued interest. The more scarce the supply of available securities, the higher the cost. Typical securities lending requires clearing brokers, who facilitate the transaction between the borrowing and lending parties.

The borrower pays a fee to the lender for the shares and this fee is split between the lending party and the clearing agent. Securities lending is important to short selling , in which an investor borrows securities to immediately sell them. The borrower hopes to profit by selling the security and buying it back later at a lower price. Since ownership has been transferred temporarily to the borrower, the borrower is liable to pay any dividends out to the lender.

Employment opportunities. Benefits of membership. Apply for membership. List of ICMA member firms. Sustainable finance. Benchmark reform and transition to risk-free rates.

Impact Reporting Metrics and Databases. Sustainable bonds database. Resource Centre. External Reviews. High-level definitions and other ICMA publications. Manage cookies. If you think the same, join us. Latest news on ETFs. Currently reading:. Cut-throat ETF price war is over, industry professionals say. China corporate bond index draws interest from offshore issuers. Active managers struggle to prove their worth in a turbulent year. Oxford university partners with BlackRock on sustainable tracker fund.

ETF Hub Exchange traded funds. The practice introduces some counterparty risk but offers a route to additional earnings. Share on twitter opens new window Share on facebook opens new window Share on linkedin opens new window Share on whatsapp opens new window. Receive free Exchange traded funds updates. Interested in ETFs? Get alerts on Exchange traded funds when a new story is published Get alerts.

If both of these were to occur, the lender would suffer a financial loss equal to the difference between the two. Fund managers must also consider other non-financial risks, such as ethical or reputational risks which can sometimes arise due to unforeseen events, or when investments do not perform as anticipated. We believe managing our securities lending operations in-house, on our proprietary platforms, is preferable to outsourcing this important function to third parties, as some other investment managers do.

To that end, we have built a robust infrastructure to help ensure that every element of our lending activity is executed in our clients' best interests and with prudent risk management. In each case, BlackRock was able to repurchase every security out on loan with collateral on hand and without any losses to our clients. As a global investment manager and fiduciary to our clients, our purpose at BlackRock is to help everyone experience financial well-being.

Since , we've been a leading provider of financial technology, and our clients turn to us for the solutions they need when planning for their most important goals. Skip to content BlackRock BlackRock. Aladdin Aladdin. Our company Our company. Professionals I consult or invest on behalf of my clients or financial institution.

General Public I want to learn more about BlackRock.