Share Lending Agreement Template for the United States

A Share Lending Agreement is a specialized financial contract that governs the temporary transfer of securities from a lender to a borrower under United States securities law. This document creates a legal framework for securities lending transactions while ensuring compliance with federal regulations including the Securities Exchange Act of 1934, SEC rules, and Federal Reserve requirements. You'll need this agreement to facilitate legitimate securities lending activities while protecting both parties' interests and maintaining regulatory compliance.

When do you need this document?

You need a Share Lending Agreement when engaging in securities lending for short selling activities, where borrowers need shares to fulfill short positions. Investment firms and broker-dealers require these agreements to facilitate client transactions and maintain adequate inventory for market making. Institutional investors use these agreements to generate additional revenue from their security holdings by lending shares to qualified borrowers. Hedge funds and trading firms need these agreements to cover settlement obligations when they lack sufficient securities inventory. Additionally, custodian banks and prime brokerages require standardized lending agreements to manage securities lending programs for their institutional clients.

Key legal considerations

Your Share Lending Agreement must address collateral requirements, as SEC Rule 15c3-3 mandates proper handling and segregation of customer securities. The agreement should specify acceptable collateral types, initial margin requirements, and daily mark-to-market procedures to maintain adequate coverage. You need clear provisions governing the borrower's obligation to return equivalent securities, not identical shares, and the lender's rights to recall securities with appropriate notice periods. The document must include fee structures, payment mechanisms, and how corporate actions like dividends or stock splits are handled during the lending period. Events of default clauses should specify circumstances triggering immediate return of securities, such as margin calls or credit deterioration. Anti-fraud provisions under SEC Rule 10b-5 require disclosure of material information that could affect the lending arrangement.

Legal requirements in United States

Under United States law, your Share Lending Agreement must comply with the Securities Act of 1933 and Securities Exchange Act of 1934, which govern securities transactions and market activities. Regulation T from the Federal Reserve sets margin requirements for securities lending activities by broker-dealers, establishing minimum collateral standards. SEC Rule 15c3-3 requires broker-dealers to maintain customer protection reserves and properly segregate customer securities involved in lending arrangements. The agreement must include provisions ensuring compliance with beneficial ownership disclosure requirements under Section 13(d) of the Exchange Act when lending results in ownership changes. State securities laws may impose additional requirements depending on the parties' locations and the nature of the lending arrangement. The document should address tax implications, as securities lending can affect the tax treatment of dividends and other distributions received during the loan period.