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Stock lending is the temporary transfer of securities, by a lender to a borrower. The borrower agrees to return equivalent securities to the lender at pre-agreed time. In securities-driven transactions, borrowing firms seek specific securities. In cash-driven trades, the lender is able to increase the returns on an underlying portfolio.
Stock lending is the temporary transfer of securities, by a lender to a borrower. The borrower agrees to return equivalent securities to the lender at pre-agreed time. In securities-driven transactions, borrowing firms seek specific securities. In cash-driven trades, the lender is able to increase the returns on an underlying portfolio.
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Stock lending is the temporary transfer of securities, by a lender to a borrower. The borrower agrees to return equivalent securities to the lender at pre-agreed time. In securities-driven transactions, borrowing firms seek specific securities. In cash-driven trades, the lender is able to increase the returns on an underlying portfolio.
Droits d'auteur :
Attribution Non-Commercial (BY-NC)
Formats disponibles
Téléchargez comme DOC, PDF, TXT ou lisez en ligne sur Scribd
Stock lending is the temporary transfer of securities, by a lender to a borrower, with
agreement by the borrower to return equivalent securities to the lender at pre-agreed time. There are two main motivations for stock lending; securities-driven, and cash-driven. In securities-driven transactions, borrowing firms seek specific securities (equities or bonds), perhaps to facilitate their trading operations. In the cash-driven trades, the lender is able to increase the returns on an underlying portfolio by receiving a fee for making its investments available to the borrower. Such transactions may boost overall income returns, enhancing, for example, returns on a pension fund.
What sorts of securities can be used in stock lending?
Securities lending covers all sorts of securities including equities, government bonds and corporate debt obligations. What are the legal underpinnings for stock lending? Parties to a stock lending transaction generally operate under a legal agreement such as the Global Master Securities Lending Agreement that sets out the obligations of the borrower and lender. In securities lending the lender effectively retains all the benefits of ownership, other than the voting rights. The borrower can use the securities as required - perhaps by lending them on to another party - but is liable to the lender for all the benefits such as dividends, interest, or stock splits. What are the benefits of stock lending? There are many positive aspects of stock lending. It can:
• increase the liquidity of the securities market by allowing securities to be borrowed
temporarily; thus reducing the potential for failed settlements and the penalties this may incur. • provide extra security to lenders through the collateralisation of a loan • support many trading and investment strategies that otherwise would be extremely difficult to execute • allow investors to earn income by lending their securities on to third parties • facilitate the hedging and arbitraging of price differentials
Can stock lending be harmful?
Stock lending, is not a harmful practice. Many feel that securities lending could aid market manipulation through short selling, which can potentially influence market prices. Short selling as such is not wrong (although market manipulation certainly is) and stock lending can assist those that have sold stock short, thus adding liquidity to the market. Another alleged potential abuse is that of tax evasion. Stock lending does not assist tax evasion. In the UK those involved in securities lending will generally be supervised by the Financial Services Authority (FSA). They will be subject to the FSA's Handbook, including the Inter-professional Conduct Chapter of the Market Conduct Sourcebook; and also subject to the provisions of the Financial Services and Markets Act on, among other things, market abuse. They will also have regard to the provisions of the Stock Borrowing and Lending Code, produced by the Stock Lending and Borrowing Committee, a committee of market participants, chaired by the Bank of England and including a representative of the FSA. What if the lender wants to vote at a company meeting on stock that has been lent? The voting rights are transferred to a borrower in a stock lending transaction. If the lender wants to exercise its right to vote it should recall the stock in good time so that a proxy voting form can be completed and returned to the registrar by the required deadline. Who are the major stock lenders? Institutional investors holding investments on behalf of the pension funds, collective investment schemes and insurance portfolios are the major lenders of stock, often using an agent such as a custodian to manage the mechanics of the process. What are the tax consequences of stock lending? The tax position in relation to stock lending is complex and varies from country to country. If in doubt those involved in stock lending should obtain professional advice their tax specialist. How does stock lending differ from repo? Economically stock lending and sales/repurchase agreements (repo) are very similar. A stock lender however charges a fee, whereas a repo counterparty pays (or receives) a rate of interest. Where can I obtain further information about stock lending? The Stock Lending and Repo Committee's website gives more information about the stock lending market, please see link below