Stock lending
Legally, a stock loan is the transfer of title in shares or bonds, against an irrevocable undertaking to return equivalent stocks.
The borrower also gives the lender collateral in the form of shares, bonds or cash.
The borrower pays the lender a fee each month for the loan and is contractually obliged to return the stocks on demand within the standard market settlement period (e.g. three days for UK equities).
The borrower will also pass over to the lender any dividends or interest received, and corporate actions that may arise.
In essence, the lender will retain the key rights they would have had if they had not lent the stock, except they will need to make special arrangements if they want to vote on the shares.
Stock lending is also known as securities lending.
