Stock Lending Agreement Template

In plain language: Identifies the lender and borrower as legal entities and defines the key terms used throughout the agreement, including loaned securities, collateral, and business day.

Common mistake: Using trading names or account aliases instead of the full registered legal entity names — mismatches create enforceability gaps, particularly in insolvency proceedings where exact entity identity is scrutinized.

In plain language: States the date the loan begins, the scheduled end date or open-term nature, and the conditions for extension or early termination by either party.

Common mistake: Failing to distinguish between open-term and fixed-term loans in the same master agreement — open loans require recall provisions; fixed-term loans require early-termination compensation clauses.

In plain language: Specifies exactly which securities are being lent — by issuer, ISIN, quantity, and class — and the settlement mechanics and deadline for delivery.

Common mistake: Describing securities by ticker symbol only rather than ISIN or CUSIP — tickers can change or be reassigned after corporate actions, creating disputes about which instrument was actually loaned.

In plain language: Sets out the type of collateral the borrower must deliver, the initial margin percentage, the daily mark-to-market obligation, and the threshold for margin calls.

Common mistake: Setting a margin threshold without specifying a cure period — without a defined window to remedy a shortfall, disputes arise over whether an event of default has occurred or the borrower is still within cure.

In plain language: States the annualized lending fee payable by the borrower, or the rebate rate payable on cash collateral, the payment frequency, and the calculation basis.

Common mistake: Pegging the rebate rate to a benchmark (e.g., SOFR, SONIA) without specifying a fallback if that benchmark is discontinued — this has caused material disputes for legacy agreements referencing LIBOR.

In plain language: Requires the borrower to pass through to the lender all cash dividends, stock dividends, and other distributions paid on the loaned securities during the loan term, net of applicable withholding tax.

Common mistake: Omitting the withholding tax treatment for cross-border loans — lenders in higher-tax jurisdictions often receive manufactured dividends net of a tax that does not match the treaty rate they would have received directly, resulting in permanent tax leakage.

In plain language: Grants the lender the right to recall loaned securities at any time on open-term loans and requires the borrower to return equivalent securities within the specified settlement period.

Common mistake: No contractual right to recall — common in informal bilateral arrangements. Without it, the lender cannot retrieve shares to vote at an AGM or meet a regulatory block-trade restriction, causing governance failures.

In plain language: Clarifies that the borrower holds voting rights during the loan term as the registered holder of the securities, and sets out any agreed mechanism for the lender to receive a recall notice ahead of a record date.

Common mistake: Assuming the lender retains voting rights without an explicit recall — once title passes to the borrower, votes follow the shares. Lenders who fail to recall before a record date permanently lose their vote for that meeting.

In plain language: Lists specific default triggers and gives the non-defaulting party the right to terminate all open loans immediately, value all positions at market, and net obligations to a single payment.

Common mistake: Listing events of default without a netting clause — without close-out netting, the non-defaulting party must fulfill its own obligations while the defaulting party's estate cherry-picks which obligations to honor.

In plain language: Specifies which jurisdiction's law governs the agreement and where disputes will be resolved — a court, arbitral forum, or the courts of a specified city.

Common mistake: Choosing governing law without considering where each party's assets are held and enforced — a New York-law agreement may be difficult to enforce against a borrower whose assets sit in a jurisdiction that does not recognize New York judgments without a full re-litigation.

A stock lending agreement is a legally binding contract under which a securities owner (the lender) temporarily transfers shares or other equity instruments to a borrower in exchange for collateral and a lending fee. Unlike a sale, the borrower is obligated to return equivalent securities at the end of the loan term. The lender retains economic exposure through manufactured dividend payments and the collateral arrangement, but loses voting rights for the duration of the loan.

Lenders use stock lending to generate incremental income on long-term holdings without selling the position. Borrowers — typically broker-dealers, prime brokers, and hedge funds — use borrowed securities to cover short-sale delivery obligations, support arbitrage strategies, or facilitate market-making. The lending fee compensates the lender for the credit risk and opportunity cost of transferring title to the securities.

Acceptable collateral typically includes cash (USD, GBP, EUR), government bonds (Treasuries, Gilts, Bunds), agency securities, and, in some agreements, investment-grade corporate bonds or equity securities with an approved haircut. Cash collateral is the most common form in North America; non-cash collateral (government bonds) is more prevalent in European markets. The agreement should specify eligible collateral types, haircut percentages, and concentration limits.

In a repurchase agreement (repo), a party sells securities and simultaneously agrees to buy them back at a fixed price on a future date — the economics resemble secured borrowing. In a stock lending agreement, title transfers but the borrower posts collateral and pays a fee; the lender retains economic exposure through manufactured dividends. Repos are typically used for liquidity management and fixed-income financing; stock lending is primarily used to supply securities for short selling and settlement.

Yes. Once title to the shares passes to the borrower, the borrower becomes the registered holder and controls the voting rights for the duration of the loan. Lenders who wish to vote at a shareholder meeting must recall the securities before the record date — typically requiring notice of three to five business days. Institutional investors running lending programs often face a trade-off between fee income and governance engagement; some adopt a policy of recalling for material votes only.

Not always. Manufactured dividends are contractual payments that replicate the economic value of a dividend, but their tax treatment differs by jurisdiction. In many countries, manufactured dividends do not qualify for the same reduced withholding tax rates available under bilateral tax treaties that apply to direct dividends. Cross-border stock lending programs should confirm the applicable withholding treatment with tax counsel before execution, as the difference can materially affect the net yield.

A properly executed stock lending agreement is generally enforceable as a binding contract in most common-law and civil-law jurisdictions when it includes offer, acceptance, and consideration. However, enforceability of specific provisions — particularly close-out netting and collateral enforcement — varies by jurisdiction. In some civil-law countries, netting is enforceable only under a recognized master agreement framework (such as the GMSLA) and may require regulatory recognition. Legal review is strongly recommended for cross-border arrangements or where insolvency scenarios are a material concern.

The Global Master Securities Lending Agreement (GMSLA), published by the International Securities Lending Association (ISLA), is the industry-standard master agreement for cross-border equity and bond lending. In North America, the SIFMA/ISLA Master Securities Loan Agreement (MSLA) serves a similar function. Using these frameworks provides legal certainty, market familiarity, and recognized close-out netting opinions in over 60 jurisdictions. For bilateral or proprietary arrangements, adapting from the GMSLA baseline is significantly faster and safer than drafting from scratch.

If the borrower defaults, the lender is entitled to enforce its collateral rights — selling or applying the posted collateral to purchase equivalent securities in the market or satisfy the outstanding obligation. Under a close-out netting clause, all open loans are terminated simultaneously, positions are valued at current market prices, and a single net payment is calculated. Without close-out netting, the lender must pursue each defaulted loan separately through insolvency proceedings, which is significantly slower and less certain.