Stock loan: Difference between revisions

Stock loan (view source)

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 But hold on. Can you sell something you only ''borrowed'' from someone? ''[[Nemo dat quod non habet]]'', right?
-Well yes, but no. Now in the financial markets, [[all cats are grey in the dark]]. Thanks to the principle of [[Fungible|fungibility]], one stock is the same as another, so the guy who lends you a security doesn't really care what you do with it, as long as you find an identical one to give back to when he wants it back.
+Well yes, but no. Now in the financial markets, [[all cats are grey in the dark]]. Thanks to the principle of [[Fungible|fungibility]], one stock is the same as another, so the guy who lends you a security doesn’t really care what you do with it, as long as you find an identical one to give back to when he wants it back.
 Therefore the {{gmsla}} is a [[title transfer]] arrangement, and not really a {{gmslaprov|loan}} at all. Clause {{gmslaprov|2.3}} (see panel) clears this up. The {{gmslaprov|Lender}} title-transfers the security, but at the end of the Loan, the {{gmslaprov|Borrower}} has to [[title transfer]] one back. In the mean time the {{gmslaprov|Borrower}} is free to sell the security it has borrowed. It is now short the security, in that it doesn’t own the security, but it still has an obligation to go out an buy the security to return it to its {{gmslaprov|Lender}} and close out the [[stock loan]].