Template:Securities lending capsule
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Under a securities loan or stock loan,[1] a “lender” transfers securities to a “borrower” in return for the borrower’s promise to return equivalent securities to the lender in the future.[2] In return, the borrower provides agreed collateral to the lender equal to the value of the borrowed securities. If the value of the borrowed securities rises, the borrower must provide more collateral (and if it falls, the borrower may ask for some of the collateral back). The lender keeps market exposure to the borrowed securities at all times: the borrower only has to return what it has borrowed, even if it has fallen in value. Therefore, stock loans are used to short-sell securities.
- ↑ in EU speak, “securities or commodities lending and securities or commodities borrowing”. Elegant, huh?
- ↑ It may be at an agreed date, or on the lender’s request, or at the borrower’s option.