Stock Lending Agreement Template for the United States

A Stock Lending Agreement is a critical legal document that governs securities lending transactions between institutional parties in the United States. This agreement establishes the terms under which one party (the lender) temporarily transfers securities to another party (the borrower) in exchange for collateral, with the understanding that equivalent securities will be returned at a future date. The document serves as the foundation for a multi-trillion dollar market that facilitates short-selling, enhances market liquidity, and generates additional revenue for securities holders.

When do you need this document?

You need a Stock Lending Agreement when your institution plans to participate in securities lending activities, whether as a lender seeking to monetize security holdings or as a borrower requiring securities for short-selling strategies. Investment management companies, pension funds, insurance companies, and broker-dealers commonly use these agreements to establish ongoing securities lending relationships. The document becomes essential when you need to formalize the legal framework for lending domestic or international securities, establish collateral requirements, and ensure compliance with federal regulations. Banks and custodians also require these agreements when providing securities lending services to their institutional clients or when acting as intermediaries in lending transactions.

Key legal considerations

Your Stock Lending Agreement must address several critical legal aspects to protect all parties and ensure regulatory compliance. Collateral requirements typically demand 102-105% of the securities' value, with daily mark-to-market adjustments to maintain adequate coverage. The agreement should clearly define events of default, including the borrower's failure to return securities or maintain required collateral levels. Corporate actions provisions must specify how dividends, stock splits, and voting rights are handled during the lending period. Indemnification clauses protect parties from losses arising from the other party's breach or regulatory violations. The agreement should also establish clear termination rights, allowing either party to recall securities or terminate loans with appropriate notice periods.

Legal requirements in United States

Under United States law, your Stock Lending Agreement must comply with multiple federal regulations governing securities markets. The Securities Exchange Act of 1934 provides the primary regulatory framework, while SEC Rule 15c3-3 mandates proper segregation and protection of customer securities. Investment companies must adhere to Section 17(a) of the Investment Company Act of 1940, which restricts affiliated transactions and requires board approval for certain lending arrangements. Regulation SHO governs locate and delivery requirements for short sales, directly impacting borrowing arrangements. Your agreement must also comply with Regulation T margin requirements and ensure proper reporting under various SEC and FINRA rules. Additionally, ERISA considerations apply when pension funds participate in securities lending, requiring prudent management and appropriate safeguards for plan assets.