Security Loan Agreement Template for the United States

When you engage in securities lending transactions in the United States, you need a comprehensive Security Loan Agreement to protect your interests and ensure regulatory compliance. This specialized contract governs the temporary transfer of securities between institutional parties, establishing clear terms for collateral, fees, and obligations under federal securities law.

When do you need this document?

You'll require a Security Loan Agreement when your institution wants to generate additional revenue from securities holdings by lending them to qualified borrowers. Investment managers, pension funds, and insurance companies commonly use these agreements to earn lending fees while maintaining beneficial ownership. Market makers and hedge funds need this document when borrowing securities for short selling strategies, covering failed settlements, or implementing sophisticated trading techniques. The agreement is also essential when establishing ongoing securities lending programs with multiple counterparties or when working through lending agents who facilitate transactions between institutional lenders and borrowers.

Key legal considerations

Your Security Loan Agreement must address several critical legal elements to protect both parties and ensure enforceability. Collateral requirements are paramount, typically requiring 102-105% of the borrowed securities' value in cash or approved securities, with daily mark-to-market adjustments. The agreement should clearly define substitute payment obligations, ensuring borrowers compensate lenders for dividends, interest, and other distributions during the loan period. Voting rights provisions must specify how proxy voting is handled, particularly for shareholder meetings occurring during the loan term. Termination clauses should address both voluntary recalls and mandatory returns triggered by corporate actions or regulatory requirements. The document must also establish clear procedures for handling corporate actions like stock splits, mergers, and spin-offs to prevent disputes over entitlements.

Legal requirements in United States

Securities lending agreements in the United States must comply with multiple layers of federal regulation. The Securities Exchange Act of 1934 provides the foundational regulatory framework, while SEC Rule 15c3-3 mandates proper segregation and protection of customer securities. Regulation SHO governs short selling practices and locate requirements that directly impact securities lending. The Federal Reserve's Regulation T establishes margin requirements and lending restrictions that affect collateral calculations. Investment companies must also consider the Investment Company Act of 1940, which imposes additional fiduciary duties and operational requirements. Post-Dodd-Frank regulations have increased transparency and systemic risk monitoring requirements, particularly for large-scale lending programs. Your agreement must include appropriate representations and warranties regarding regulatory compliance, establish clear reporting obligations, and incorporate standard industry documentation such as MSLA or GMSLA frameworks where applicable.