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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Other Services Provided by Brokers

A client lends 1,000 shares through the Securities Lending and Borrowing (SLB) mechanism. Which of the following is correct regarding the lender's economic rights during the lending period?

In SLB, the lender is compensated by the borrower for corporate benefits like dividends on the lent shares, and also earns a lending fee. The lender does not pay any fee, and voting rights go along with the shares to the borrower.

  1. AThe lender loses all rights over the shares including corporate benefits
  2. BThe lender is entitled to be compensated by the borrower for corporate benefits such as dividends on the lent sharesCorrect
  3. CThe lender must pay the borrower a fee for the shares
  4. DThe lender can vote at the general meeting through the exchange

Explanation

In SLB the borrower takes the shares and must compensate the lender for corporate benefits such as dividends or bonus during the tenure, and the lender receives a lending fee. The lender does not pay a fee, and voting rights pass with the shares to the borrower.

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