Securities lending.
In plain English
Securities lending is the practice of loaning out stocks or bonds, usually so a short seller can borrow and sell them, in exchange for a fee and collateral. Funds and brokers do it to earn extra income. Some brokers run programs that lend the shares in your account and split the fee with you, which adds a little yield. The tradeoffs: while your shares are on loan you may lose your voting rights, and in-lieu dividend payments can be taxed less favorably than real dividends. The core ownership and price exposure stay yours, but a few rights temporarily do not.
01Why it matters
Securities lending can pay you a small extra return on shares you already hold, but it can cost you voting rights and favorable dividend tax treatment, so knowing the tradeoffs helps you decide whether to opt in.
02The math, step by step
You enroll in a lending program and your broker lends out 10,000 dollars of a stock you own to a short seller. You collect a small lending fee as extra income, but you give up your shareholder vote while the shares are on loan.
03What this is NOT
Securities lending does NOT mean selling your shares. You keep ownership and price exposure; the shares are temporarily loaned out, and you can usually recall or sell them, though you may lose voting rights while lent.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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