Securities Lending

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DEFINITION

The act of loaning a stock, derivative, other security to an investor or firm. Securities lending requires the borrower to put up collateral, whether cash, security or a letter of credit. When a security is loaned, the title and the ownership is also transferred to the borrower.

INVESTOPEDIA EXPLAINS

Securities lending is important to short selling, in which an investor borrows securities in order to immediately sell them. The borrower hopes to profit by selling the security and buying it back at a lower price. Since ownership has been transferred temporarily to the borrower, the borrower is liable to pay any dividends out to the lender.


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