Share Lending Agreement Template for Canada

A Share Lending Agreement is a specialized financial contract that allows you to legally lend or borrow securities in the Canadian market while maintaining compliance with federal and provincial regulations. This document establishes the framework for temporary securities transfers, ensuring both parties understand their obligations regarding collateral, fees, and risk management under Canadian law.

When do you need this document?

You need a Share Lending Agreement when engaging in securities lending transactions as an institutional investor, broker-dealer, or market maker. Investment funds use these agreements to generate additional revenue from their securities holdings by lending shares to market participants who need them for short selling strategies. Broker-dealers require this document when facilitating client trades that involve borrowed securities for settlement purposes. Market makers utilize share lending agreements to maintain liquidity and manage inventory positions. Pension funds and asset managers also employ these agreements to monetize their long-term holdings while maintaining beneficial ownership rights.

Key legal considerations

Your Share Lending Agreement must address several critical legal elements to ensure enforceability and regulatory compliance. The collateral provisions are essential, requiring you to specify acceptable collateral types, valuation methods, and margin requirements that protect against counterparty default. You must clearly define the lending fee structure, including how rates are determined and payment schedules. The agreement should include comprehensive default and termination clauses that outline remedies available to both parties. Corporate actions provisions are crucial, ensuring you receive equivalent benefits when the borrowed securities pay dividends or undergo stock splits. Tax considerations require careful attention, particularly regarding payments in lieu of dividends and their treatment under the Income Tax Act. Indemnification clauses protect you from losses arising from the other party's breach or regulatory violations.

Legal requirements in Canada

Canadian Share Lending Agreements must comply with multiple layers of federal and provincial regulation. Each province's Securities Act governs the transaction, with specific rules varying by jurisdiction where the parties are registered or the securities are traded. National Instrument 81-102 imposes additional requirements on investment funds, including limits on the percentage of assets that can be lent and mandatory collateral ratios. The federal Income Tax Act affects how lending fees and substitute payments are taxed, requiring proper documentation for tax reporting purposes. If banks are involved as parties, the Bank Act may impose additional compliance obligations. Investment Industry Regulatory Organization of Canada (IIROC) rules apply to dealer participants, mandating specific operational and reporting requirements. Your agreement must include proper disclosure provisions and maintain records as required by applicable securities legislation. Registration requirements may apply depending on the parties' status and the nature of their securities lending business.