Securities lending

Securities lending is a technique commonly used by asset managers. It is a transaction in which a fund lends securities (stocks or bonds) from its assets to one or more counterparties in exchange for a payment received net of fees and commissions. By improving the fund's performance, this operation ultimately benefits investors.  

Asset lending against payment is formalized in a securities lending contract signed with the counterparty. In the case of a UCITS fund, the lender has the option to recall the lent securities at any time.  

In exchange for the lent securities, the fund receives assets in the form of collateral for the duration of the loan. The collateral, which can consist of cash or securities, is held in a segregated account domiciled with a custodian. Regarding collective investment undertakings within the meaning of the UCITS Directive, the collateral must be directly available in the event of a default by a counterparty that has benefited from the loan. Guarantees in the form of securities cannot be reused. The value of the received collateral is higher than the amount lent. This positive difference, called a "haircut," provides additional security to the fund. The amount of the haircut depends on the type and quality of the securities received as collateral: the more volatile they are, the higher the haircut.