Term · Liquidity & Trading
Securities Lending
In briefSecurities lending is the temporary transfer of securities against a fee and collateral, usually for short selling. The lender retains the price risk, while voting rights pass to the borrower. For small stocks, lendable shares are often scarce and fees high.
Definition
Securities lending is the temporary transfer of securities against a fee and collateral, in which the borrower uses the securities, for example for short selling or settlement. The lender receives a lending fee and retains the economic price risk. Voting rights generally pass to the borrower for the duration of the loan.
Why it matters for small caps
For small and micro caps with a low free float, the availability of lendable shares can be scarce and the lending fee high, which makes short selling more difficult. High lending costs are a signal of scarcity or strong short demand.
Common misreadings
- Securities lending is confused with a sale, even though the lender continues to bear the price risk and only transfers the securities temporarily.
Frequently asked
What are borrowed shares used for?
Often for short selling, but also for settling trades or covering delivery obligations. The borrower pays a lending fee for this.
What happens to the voting rights?
During the loan, voting rights generally pass to the borrower. The lender, however, retains the economic price risk.
Why is securities lending tricky for small caps?
A low free float limits the number of lendable shares. This drives up lending fees and considerably complicates or increases the cost of short selling.
Related terms
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.