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Lending Securities

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Lending securities
Securities borrowed from a broker's inventory, from another customer's margin account, or from another broker, when a customer is required to deliver on a short sale.

Lending Securities
In short selling, the act or practice of placing one's own securities into the trust of another person or institution with the expectation that identical securities will be returned within a certain number of days (often three). The practice of lending securities is crucial to the borrower's hedging of risk: if the borrower were unable to obtain such a security, he/she would be unable to make a profit on a decline in the security's value. Securities are often lent by a broker and placed in a margin account. See also: Hedge fund.


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When lending securities, the exposure is the same - to maintain book cost, lenders expect that the security will be returned at the same price.
Securities lending involves transactions where lending institutions, including agent banks, pension funds, mutual funds and insurance companies earn incremental income on their portfolios by lending securities to borrowing institutions, typically broker/dealers, facilitating proprietary and customer short positions in the market.
Lending securities plays an important role in the global financial system, and the size of the market is estimated at between $1.
 
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