Securities lending is a process by which the owner of a share (the investor - that could be you, a pension fund or ETF) temporarily transfers the share and its associated rights to a borrower. The lender (Freetrade) charges a fee to the borrower during the life of the loan, so the process generates an income for the lender.

To manage the risk that a borrower might not return the shares, the borrower must post collateral, such as cash or government bonds, that are greater in value than the borrowed shares. A wide range of financial institutions from pension funds to banks and brokers are regularly involved in securities lending activities.

Securities lending plays an integral part within financial markets by helping to create liquidity, allowing companies to manage their balance sheets, and facilitate trading strategies. Securities that are transferred to a borrower are returned at the end of the transaction when they’re no longer required. Throughout the duration of the transaction, the securities can be recalled by the lender at any time.

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