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

In securities lending and borrowing, a lender gives shares to a borrower. Which describes the position of the lender during the lending period?

The lender earns a lending fee and receives equivalent securities back at the end of the contract, with the borrower compensating for corporate benefits as per the scheme. It is not a permanent sale and the lender does not repurchase the shares.

  1. ALender retains no economic benefits and gets nothing back
  2. BLender receives a fee and gets the securities back at the end, with the borrower compensating for corporate benefits per the schemeCorrect
  3. CLender permanently transfers ownership and cannot recall shares
  4. DLender must purchase the shares again in the market at expiry

Explanation

Under the SLB mechanism the lender earns a lending fee and receives the same securities back at the close of the contract. Corporate benefits such as dividends are compensated by the borrower as per the scheme. Ownership transfer without return would contradict the lending concept.

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