The loan of securities is the act of lending to an investor or an investment company. The loan of securities is conditional on the borrower setting up guarantees, whether cash, guarantees or letters recommended. When a security is lent, the title and ownership are also transferred to the borrower. Securities lending is also involved in hedging, arbitrage and non-handling credits. In all of these scenarios, the benefit to the securities lender is either to obtain a low return on the securities currently held in its portfolio, or to possibly cover cash requirements. They may also consider the establishment of a concerted party contract, under which majority shareholders can grant each other a prerogative over share transfers and possibly agree on the vote on certain issues. Such an agreement should take into account the provisions of the UK Acquisitions Code, as the transfer or acquisition of shares by a joint venture could result in an obligation for controlling shareholders to make a firm offer to the company. There are a number of areas in which your interests as founder/controller and those of the company are in conflict. Once a company is publicly traded, you must answer to the non-executive directors independent of the board of directors and you must sign a relationship agreement whereby you will have to agree with the company on the basis of an arm length. Another problem to note is that the company`s board of directors may be less motivated than you to get the highest possible issue price for IPO shares, which is why we often recommend appointing an independent bookrunner financial advisor.
You should also make sure that your personal position is protected, for example. B with respect to any liability you have to assume as part of the insurance policy guarantees. There may also be assets that are not part of the core business that you wish to withdraw from the group prior to the IPO, or transactions outside the group, which the Bookrunners claim should be part of the listed group. They must therefore negotiate the terms of such a reorganization prior to the IPO and need independent legal representation to ensure that the reorganization is carried out on favourable terms. Securities lending is important for short selling in which an investor borrows securities and sells them immediately. The borrower hopes to take advantage of this by selling the guarantee and later buying it back at a lower price. As the property has been temporarily transferred to the borrower, the borrower is required to pay dividends to the lender. In these transactions, the lender is compensated in the form of agreed fees and has also repaid the guarantee at the end of the transaction. This allows the lender to increase its returns by obtaining these fees. The borrower benefits from the opportunity to make a profit by reducing the securities. Securities lending is usually made between brokers and/or traders, not between individual investors. To complete the transaction, a securities loan agreement, called a loan agreement, must be concluded.
It defines the terms of the loan, including the term, the lender`s fees and the nature of the guarantees.