Margin lending

SFTR Anatomy™ Regulation on Transparency of Securities Financing Transactions and of Reuse (2015/2365/EC (EUR Lex)), aka the securities financing transactions regulation →Go uptown Article 3(10), SFTR 3(10) ‘margin lending transaction’ means a transaction in which a counterparty extends credit in connection with the purchase, sale, carrying or trading of securities, but not including other loans that are secured by collateral in the form of securities; (view template) Primary source The ludicrous industry-standard title transfer disclosure document Articles | 3(8) | Buy-sell back transaction | 3(9) Repurchase transaction | 3(10) Margin lending transaction | 3(11) Securities financing transaction | 3(12) Reuse Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

This is the classic prime brokerage trade. I'm a hedge fund, and I am all about Vega — the Greek that denotes leverage.

How do I get my spectacular returns? <strikethru>Alpha</strikethru>leverage, that’s how. I buy securities “on margin”. This means I buy the security, and you, dear prime broker, pay for it. Well, strictly speaking, you lend me the funds I need to pay for it, but in practice you settle the transaction directly with the executing broker and you take delivery of the security on my behalf. For, in return for your loan, I let you look after the security for me, whereby you can (A) have a security interest over it to secure your loan, and (B) you can rehypothecate it into the market to defray your funding costs of providing me the loan in the first place.

I must pay you initial margin as cover should the value of my new asset decline against repayment value of the outstanding loan.

See also

• Prime brokerage
• Rehypothecation
• Greeks