Q&As

Securities lending and repos both involve the transfer and retransfer of securities and both can be used to cover a short position. What is the difference?

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Published on LexisPSL on 24/04/2015

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • Securities lending and repos both involve the transfer and retransfer of securities and both can be used to cover a short position. What is the difference?
  • What are securities lending and repurchase (repo) transactions?
  • What are the similarities between securities lending and repo transactions?
  • Use in the financial markets

Securities lending and repos both involve the transfer and retransfer of securities and both can be used to cover a short position. What is the difference?

What are securities lending and repurchase (repo) transactions?

A securities lending transaction involves:

  1. outright transfer of securities by one party (the lender) to another party (the borrower) in exchange for outright transfer of collateral (which may be cash or securities) by the borrower to the lender

  2. simultaneous agreement that the borrower will deliver securities which are equivalent to (that is, fully fungible with) the loaned securities when the transaction terminates in exchange for delivery by the lender of assets which are equivalent to the collateral

  3. payment of a fee by the borrower to the lender

  4. payment by the borrower to the lender of amounts equal to income received on the loaned securities during the term of the transaction (manufactured dividends), and

  5. if the collateral is in the form of securities, payment by the lender to the borrower of manufactured dividends on the collateral

For more information on securities lending transactions, see Practice Note: An introduction to securities lending transactions and the Global Master Securities Lending Agreement (GMSLA). For more more

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