Lending and Securities

A securities lending arrangement is an agreement whereby a ‘security holder’ (lender) provides securities (such as shares) to a borrower for a specified time in exchange for the (temporary) transfer by the borrower to the lender of collateral and a fee.

The collateral is usually to a value over and above the loaned securities, in the form of cash or non-cash assets, the most typical form being equity securities (shares) and debt securities (bonds).

At the end of the agreed time, or sooner on demand, the borrower must return equivalent securities to the lender in exchange for the transfer back by the lender of the collateral.

The terms of the arrangement are embodied in a securities agreement which sets out the negotiated fees for the loan and protects the interests in the ownership of the securities and collateral.

Although the term ‘loan’ is used, the arrangement really constitutes an outright transfer to the borrower of the title to the securities which can be retained, sold or on-loaned to a third party.

The securities lending process is strategic and complex and with pros and cons applicable to both lender and borrower.

We recommend that when entering into a financial transaction the parties seek guidance from one of our experienced lawyers. Our lawyers have expertise in all facets of corporate banking and finance and can provide strategic, cost-effective advice with respect to:

  • drafting, reviewing and advising on loan security arrangements;
  • negotiating financing terms and conditions;
  • advising, registering and perfecting security interests under the Personal Property Securities Act;
  • advising on the enforcement of securities, charges and corporate guarantees.