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Securities Lending
What are the risks of securities lending?
What are the risks of securities lending?
Troy avatar
Written by Troy
Updated over a week ago

Freetrade is committed to protecting our customers, however, as with any financial transaction, there are risks associated with securities lending.

The borrower may become insolvent and be unable to return the shares lent to them. The collateral that is pledged could fall below the value of the loaned securities, either because the value of the loaned security increases sharply or because the value of the collateral(typically government bonds) declines unexpectedly. These situations could result in a shortfall between the value of your shares on loan and the collateral held on your behalf.

To mitigate these risks we review the value of collateral on a daily basis to ensure that this remains adequate. Where there is a requirement, we will arrange for additional collateral to ensure that collateral greater than the value of your shares is in place. We also only accept high quality, liquid collateral such as government bonds, investment-grade corporate bonds and cash, the value of which are less prone to sudden price fluctuations.

If for any reason the borrower can’t return the shares, Freetrade will be holding the collateral on your behalf. In this case, we would sell the collateral and take all reasonable measures to return the shares to you.

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