Lending securities

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.
References in periodicals archive ?
Mudenyo said the amendments ought to have had clear policies on lending securities.
However, as became clear during the emergency bailout of the insurer American International Group (AIG) during the financial crisis in 2008, some insurance companies also engage in nontraditional activities, such as selling credit default swaps or lending securities, that could pose a threat to financial stability.
The bank serves both Corporate Institutional and retail clients provides credit cards personal loans mortgages deposit taking and wealth management services to individuals and small to medium sized enterprises trade finance cash management lending securities services foreign exchange debt capital market and corporate finance to corporate institutional clients.
25, 2011 (CENS) -- In response to the short selling of Taiwanese stocks by foreign investors with borrowed securities, the Financial Supervisory Commission (FSC) has resorted to five major measures, including reminding insurance firms to evaluate the returns and cost for lending securities to insurance firms and reviewing the legality of loan-oriented securities borrowing.
First, it will remind insurance firms to evaluate the cost and returns for lending securities to foreign investors, such as the effect on their own stock-investment positions.
Such activities include dealers making markets for customers, investors lending securities to dealers to facilitate settlement of dealer sales, and arbitrageurs seeking to exploit, and thereby eliminate, price relationships that present abnormal profit opportunities.)
For example, through its securities lending program, AIG Financial Products unit was lending securities, mainly related to the accumulation of insurance reserves, at maturities from over night to 2 weeks in duration.
In a separate interview, Crawford said that "unlike some of our competitors," Schwab itself will not be making any money from lending securities in the ETFs, "all those revenues will go back to shareholders alone," he pledged.
In return for lending securities, AIG typically received cash collateral worth between 100% and 102% of the securities being lent and then invested this cash until the loaned securities were returned, at which point the cash collateral had to be returned.
(6) Figure 2 shows the history of lending under this program initiated in December 2007--the same time that the Fed began lending securities to primary dealers through the TSLF.
The central bank then put some muscle behind its words by pushing up overnight interest rates by lending securities to the banking system.
This reflects the essential character of a special collateral RP as a device for borrowing and lending securities.