The Securities Lending Transaction
Securities lending arrangements arise when a holder of securities agrees to temporarily transfer ownership to a borrower for a period of time. At the end of the period, the borrower returns replacement securities, which are either the original securities, or more commonly an equivalent in number and type to the original securities.
The borrower provides the lender with collateral for the term of the loan, and pays the lender a fee for the use of the borrowed securities. The borrower also compensates the lender for rights and distributions accruing on the borrowed securities during the term of the loan.
Upon return of the stock the borrower may receive a cash rebate from the lender. This is calculated on the collateral lodged with the lender and is usually paid monthly.