What is securities lending program?

Securities lending is the practice of loaning shares of stock, commodities, derivative contracts, or other securities to other investors or firms. Securities lending provides liquidity to markets, can generate additional interest income for long-term holders of securities, and allows for short-selling.

How does fully paid securities lending work?

The borrower pays a loan fee for the securities that are borrowed. The lender receives the majority of the loan fee, and the remaining portion of the loan fee is shared with the lending agent or clearing broker and often the borrower’s broker-dealer.

Is securities lending a regulated activity?

Securities lending is a heavily regulated and globally supervised industry.

What is mark to market securities lending?

On a daily basis, lending agents will mark-to-market to determine if the borrower needs to post additional collateral (“mark-up”) or if the lender must return collateral (“mark-down”) as the value of the borrowed security fluctuates.

What are the risks of securities lending?

There are two primary risks of securities lending: borrower default risk and cash collateral reinvestment risk. Borrower default risk is the risk that the counterparty fails to return the borrowed security back to the lender.

Can Robinhood lend my shares?

Robinhood promotes “investing for everyone,” though many users will want to access the settings and finetune their experience. By default, the trading application enables Share Lending — otherwise known as “Margin Investing,” as it appears in the app.

How do investors borrow shares?

When a trader wishes to take a short position, they borrow the shares from a broker without knowing where the shares come from or to whom they belong. The borrowed shares may be coming out of another trader’s margin account, out of the shares held in the broker’s inventory, or even from another brokerage firm.

How is MTM profit/loss calculated?

Mark-to-Market (MTM) profit and loss shows how much profit or loss you incurred over the statement period, regardless of whether positions are open or closed. MTM P/L= Position MTM + Transaction MTM – Commissions. Position MTM= (Current Closing Price – Prior Closing Price) x Prior Quantity x Multiplier.

Can I stop Fidelity from lending my shares?

Either you or Fidelity can terminate the loan at any time by selling the shares on loan (which is a termination or “recall” notice) or recalling the shares by contacting Fidelity to request that a loan be returned. Fidelity can terminate a loan at any time by returning the shares on loan.

Can mutual funds lend securities?

Securities lending is a well-established practice whereby U.S. registered funds, such as mutual funds, make loans of securities to seek an incremental increase in returns for fund shareholders.

How should we evaluate securities lending programs?

In evaluating a securities lending program, fund sponsors should focus on the ability of the lending agent to mitigate the risks of cash collateral impairment and liquidity as well as counterparty exposure.

How do fund sponsors lend securities?

Fund sponsors participate in direct securities lending through separate accounts, and indirectly through commingled funds such as collective trusts, mutual funds, or ETFs. A lending agent facilitates the transaction by seeking out a borrower and negotiating the loan terms on behalf of the fund sponsor.

What is a securities lending transaction?

As with any loan, a securities lending transaction involves a lender (in this case a fund sponsor) and a borrower (a market participant or interested counterparty). Fund sponsors participate in direct securities lending through separate accounts, and indirectly through commingled funds such as collective trusts, mutual funds, or ETFs.

What should the lending agent do to promote operational discipline?

The lending agent should promote operational discipline by implementing strict controls, audit procedures, and transparency to monitor the daily activities of the program.