What is securities lending?

Securities lending is an agreement in which the owner of certain stocks temporarily lends them to another interested party in exchange for a fee. The borrower agrees to return the shares on a pre-agreed date, along with any dividends or rights generated during the lending period.

What are the advantages?

Securities lending can be beneficial for both the lender and the borrower. Here are some of the main advantages:

• Additional income: The stock owner earns extra income without selling the shares, simply by temporarily lending them out.
• Retention of economic rights: Although the shares are on loan, the lender still receives economic compensation equivalent to dividends or coupons during the lending period.
• No impact on portfolio accounting valuation: The loaned shares continue to appear on the lender’s balance sheet, which may be important for financial reporting or internal policy compliance.
• Transparency and traceability: Today, many securities lending systems operate electronically, providing visibility and traceability of all transactions.
• Service managed by specialized third parties: Many financial institutions offer this service as part of their custody or investment management solutions, reducing the operational burden for the client.

What should you consider before using this service?

In the investment world, trust is essential, and before investing or contracting any service, it's always advisable to carefully review the conditions and features. In the case of securities lending, here’s what we recommend you take into account:

• Counterparty solvency: Although collateral is usually required, it’s wise to gather as much information as possible about the entity or person borrowing the shares — their track record, financial strength, and reliability.
• Shareholder rights: With this service, the share owner retains full control over the securities even while they are on loan. The only right that is temporarily lost is the right to vote at shareholder meetings.
• Contractual terms: It’s important to carefully read the lending conditions, including the loan duration, required collateral, fees, and return mechanisms.

In summary

Securities lending is a financial tool that allows you to generate income from assets in your portfolio and contributes to market efficiency. However, like any investment strategy, it requires a good understanding of its implications and an honest assessment of your risk profile.

Is it for you? If you have a diversified portfolio and are looking to increase its returns without selling your positions, this could be an interesting option to explore through the service offered by MoraBanc.

You can watch a more detailed video Here.