Are you an EPFL student looking for a semester project?
Work with us on data science and visualisation projects, and deploy your project as an app on top of Graph Search.
Concept
Securities lending
Summary
In finance, securities lending or stock lending refers to the lending of securities by one party to another.
The terms of the loan will be governed by a "Securities Lending Agreement", which requires that the borrower provides the lender with collateral, in the form of cash or non-cash securities, of value equal to or greater than the loaned securities plus an agreed-upon margin. Non-cash refers to the subset of collateral that is not pure cash, including equities, government bonds, convertible bonds, corporate bonds, and other financial products.
The agreement is a contract enforceable under relevant law, which is often specified in the agreement. As payment for the loan, the parties negotiate a fee, quoted as an annualized percentage of the value of the loaned securities. If the agreed form of collateral is cash, then the fee may be quoted as a "short rebate", meaning that the lender will earn all the interest that accrues on the cash collateral and will "rebate" an agreed rate of interest to the borrower. Key lenders of securities include mutual funds, insurance companies, pension plans, exchange-traded funds and other large investment portfolios.
Securities lending is an important means of eliminating "failed" transactions as well as enabling hedge funds and other investment vehicles to sell short their shares.
Short selling, and the borrowing securities that goes with it, goes back to the earliest days of stock trading. The NYSE used to operate a loan post, but ceased doing so in 1933 as a result of public pressure over short selling. Formal equity lending transactions took place in the City of London in the early 1960s and it became highly prevalent as an industry in the early 1980s. The practice has evolved from a back office operation to a common investment practice that enhances returns for large financial institutions.
Until the start of 2009, securities lending was only an over-the-counter market, so the size of this industry was difficult to estimate accurately.
Official source
About this result
This page is automatically generated and may contain information that is not correct, complete, up-to-date, or relevant to your search query. The same applies to every other page on this website. Please make sure to verify the information with EPFL's official sources.