Share Lending Agreement Template for New Zealand

A Share Lending Agreement is a specialized financial contract that enables the temporary transfer of securities from one party to another in exchange for collateral and fees. Under New Zealand law, this document is governed primarily by the Financial Markets Conduct Act 2013 and requires careful consideration of regulatory compliance, risk management, and commercial terms.

When do you need this document?

You need a Share Lending Agreement when engaging in securities lending as either a lender or borrower in New Zealand's financial markets. Institutional investors, mutual funds, and pension funds typically use this agreement to generate additional revenue from their securities holdings by lending them to broker-dealers, banks, or hedge funds. The borrowing party might need securities for short selling strategies, covering settlement failures, or fulfilling delivery obligations. Prime brokers and custodian banks also utilize these agreements to facilitate client transactions and optimize inventory management. The document becomes essential when you need to establish clear terms for collateral posting, fee calculations, and the handling of corporate actions during the lending period.

Key legal considerations

Several critical legal elements must be addressed in your Share Lending Agreement to ensure enforceability and risk mitigation. The identification and delivery of securities must be precisely defined, including the quantity, type, and settlement procedures. Collateral requirements are crucial, typically requiring the borrower to provide cash or securities worth more than the borrowed securities' value to protect against default. Fee structures must be clearly established, covering both lending fees and any rebate arrangements. The agreement should address corporate actions, determining how dividends, stock splits, and voting rights are handled during the lending period. Termination clauses must specify circumstances under which either party can recall securities or terminate the arrangement. Default provisions should outline consequences and remedies for breach, including the right to liquidate collateral.

Legal requirements in New Zealand

New Zealand's regulatory framework imposes specific requirements on Share Lending Agreements that you must incorporate into your document. The Financial Markets Conduct Act 2013 mandates disclosure obligations and conduct standards for financial service providers involved in securities lending. You must ensure compliance with the Companies Act 1993 regarding share transfers and shareholder rights during the lending period. The Income Tax Act 2007 requires careful consideration of tax implications, particularly regarding dividend payments and any deemed disposals. Anti-Money Laundering and Countering Financing of Terrorism Act 2009 compliance is essential, requiring proper customer due diligence and reporting procedures. The Financial Markets Authority's oversight means your agreement must meet conduct and disclosure standards. Additionally, you should consider the Contract and Commercial Law Act 2017's general contract formation and enforcement principles to ensure your agreement's validity and enforceability in New Zealand courts.