Security Lending Agreement Template for the United Arab Emirates

A Security Lending Agreement is a specialized financial contract that governs the temporary transfer of securities from a lender to a borrower in exchange for collateral. Under United Arab Emirates law, this agreement creates a legal framework that protects both parties while facilitating efficient securities markets and generating additional revenue streams for institutional investors.

When do you need this document?

You need a Security Lending Agreement when your financial institution wants to monetize idle securities holdings by lending them to market participants who require specific securities for short-term purposes. Investment managers, pension funds, and sovereign wealth funds commonly use these agreements to enhance portfolio returns. Borrowers typically include broker-dealers needing securities for client settlements, hedge funds executing short-selling strategies, or market makers maintaining inventory to provide liquidity. The agreement is also essential when establishing triparty arrangements involving custodian banks or when participating in automated securities lending programs through central securities depositories.

Key legal considerations

The agreement must clearly define the rights and obligations of all parties, particularly regarding collateral requirements and margin calls. Critical clauses include the securities lending rate structure, acceptable collateral types, and valuation methodologies for both loaned securities and posted collateral. You must address corporate actions procedures, ensuring borrowers handle dividend payments, stock splits, and voting rights appropriately. Default and termination provisions require careful drafting to protect against counterparty risk, including rights to liquidate collateral and close-out netting procedures. The agreement should specify governing law, jurisdiction for disputes, and compliance with international securities lending master agreements such as the Global Master Securities Lending Agreement (GMSLA).

Legal requirements in United Arab Emirates

Securities lending agreements in the UAE must comply with Federal Law No. 32 of 2021 on Commercial Companies, which governs commercial transactions between corporate entities. The Central Bank's Decree-Law No. 14 of 2018 imposes regulatory requirements on financial institutions engaging in securities lending, including capital adequacy and risk management standards. SCA Decision No. 11/R.M of 2016 specifically regulates securities lending activities, requiring proper disclosure, reporting, and operational procedures. Anti-money laundering compliance under Federal Law No. 20 of 2018 mandates customer due diligence and transaction monitoring for all parties. The agreement must incorporate UAE Civil Code principles regarding contract formation, performance, and breach remedies, ensuring enforceability in UAE courts.