Stock Borrowing And Lending Agreement for the United States

Stock Borrowing And Lending Agreement Template for United States

A Stock Borrowing And Lending Agreement (SBLA) is a comprehensive legal document governed by U.S. federal securities laws and regulations, including SEC regulations and FINRA rules. It establishes the terms and conditions under which one party can borrow securities from another against collateral, typically for purposes such as short selling or covering settlement failures. The agreement details rights, obligations, collateral requirements, fees, and default provisions, while ensuring compliance with U.S. regulatory requirements.

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What is a Stock Borrowing And Lending Agreement?

The Stock Borrowing And Lending Agreement (SBLA) is essential for financial institutions engaging in securities lending transactions within the U.S. market. It's typically used when parties need to establish an ongoing relationship for securities borrowing and lending, rather than conducting one-off transactions. The agreement incorporates requirements from multiple U.S. regulatory frameworks, including SEC regulations, FINRA rules, and Federal Reserve requirements. It covers crucial aspects such as collateral management, corporate actions, voting rights, and default scenarios, while ensuring tax efficiency and regulatory compliance.

What sections should be included in a Stock Borrowing And Lending Agreement?

1. Parties: Identification of lender and borrower, including registration details and regulatory status

2. Background: Context of the agreement and relationship between parties

3. Definitions: Key terms used throughout the agreement including Securities, Collateral, Business Day, and Income

4. Loans of Securities: Core terms governing the borrowing and lending process, including loan mechanics and duration

5. Collateral Requirements: Details of required collateral, maintenance margins, and marking to market procedures

6. Rights and Obligations: Parties' responsibilities throughout loan period, including voting rights and corporate actions

7. Fees and Payments: Lending fees, payments, and distribution rights including manufactured dividends

8. Events of Default: Circumstances constituting default and remedies available to non-defaulting party

9. Termination: Conditions and process for ending the agreement and closing out positions

What sections are optional to include in a Stock Borrowing And Lending Agreement?

1. Tax Provisions: Treatment of substitute payments and tax obligations, including withholding tax considerations

2. Agency Provisions: Terms governing agency relationships and principal transactions

3. Market Disruption: Procedures during market disruption events and force majeure circumstances

4. Netting Provisions: Terms for payment and delivery netting across transactions

What schedules should be included in a Stock Borrowing And Lending Agreement?

1. Schedule A - Eligible Securities: List of securities eligible for borrowing/lending and any restrictions

2. Schedule B - Eligible Collateral: Approved forms of collateral, haircuts, and valuation methods

3. Schedule C - Fee Schedule: Detailed breakdown of fees, charges, and rate calculation methods

4. Schedule D - Operating Procedures: Detailed procedures for loans, returns, and corporate actions

5. Appendix 1 - Form of Loan Confirmation: Standard form for confirming individual loans and their terms

6. Appendix 2 - Tax Documentation: Required tax forms and certificates including W-8BEN or W-9 forms

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Cost

Free to use

Relevant legal definitions

Clauses

Relevant Industries

Investment Banking
Asset Management
Hedge Funds
Broker-Dealers
Insurance

Relevant Teams

Trading
Legal
Risk Management
Operations
Compliance
Treasury

Relevant Roles

Securities Lending Trader
Risk Manager
Compliance Officer
Legal Counsel
Operations Manager
Portfolio Manager

Industries

Securities Exchange Act of 1934: Primary federal legislation governing securities trading, establishing SEC authority and regulating securities markets, brokers, and dealers

Securities Act of 1933: Federal law requiring registration of securities offerings and detailed financial/company disclosures to ensure transparency

Regulation T: Federal Reserve regulation governing margin requirements and extension of credit by brokers for securities transactions

Rule 15c3-3 (Customer Protection Rule): SEC rule requiring broker-dealers to segregate customer securities and maintain reserves for customer funds

Regulation SHO: SEC regulation establishing framework for short sale regulation, including locate and close-out requirements

Rule 10b-5: SEC anti-fraud provision prohibiting deceptive practices in connection with securities trading

Rule 204: Regulation requiring prompt delivery of securities in short sale transactions and imposing close-out requirements

FINRA Rule 4320: Industry rule governing short sale delivery requirements and related obligations

FINRA Rule 11870: Regulation governing customer account transfer procedures between broker-dealers

Regulation W: Federal Reserve regulation governing transactions between banks and their affiliates

UCC Article 8: Uniform Commercial Code article governing investment securities, transfers, and rights of parties

UCC Article 9: Uniform Commercial Code article governing secured transactions, including security interests in financial assets

IRC Section 1058: Internal Revenue Code section governing tax treatment of securities lending transactions

Dodd-Frank Act: Comprehensive financial reform legislation including reporting requirements and risk management provisions for securities lending

Blue Sky Laws: State-specific securities laws governing registration and disclosure requirements for securities transactions

DTCC Requirements: Rules and operational requirements set by the Depository Trust & Clearing Corporation for securities lending transactions

Bankruptcy Code Provisions: Federal bankruptcy laws governing treatment of securities lending transactions during bankruptcy, including Qualified Financial Contract provisions

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What is a Stock Borrowing And Lending Agreement?

What sections should be included in a Stock Borrowing And Lending Agreement?

What sections are optional to include in a Stock Borrowing And Lending Agreement?

What schedules should be included in a Stock Borrowing And Lending Agreement?

Authors

Alex Denne

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