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ISLA MANIFESTO 2024
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What is Securities

Lending & Borrowing? From a legal and tax perspective, it is important to note that:

• Most transactions are carried out using ‘outright transfer of title’ meaning that
legal title to both securities and collateral passes on to the borrower and the lender
respectively.
Securities lending and borrowing is a long-
established and well-functioning market in Europe, • However, whilst legal ownership to the securities is transferred to the borrower
where an investor temporarily lends securities throughout the duration of the transaction, the economic ownership remains with
the lender. Whilst the borrower receives all dividends and/or interest coupons
to a borrower, in return for a fee. It is one of four during the life of the transaction, these are then passed back to the lender, via what
different securities financing transaction (SFT) types, is called a manufactured payment.
along with repurchase transactions (repos), buy- • Most transactions take place under the Global Master Securities Lending
sell back transactions, and margin or commodity Agreement (GMSLA) - Title Transfer and the Security Interest over Collateral
lending. 7 (Pledge) Agreement both supported by legal opinions with regards to the
Securities can be in the form of bonds issued by enforceability of the agreement across jurisdictions.
governments or corporates as well as equities and
Exchange-Traded Funds (ETFs). In addition to the Click here to access the ISLA
fee, the borrower provides the lender with collateral Securities Lending & Borrowing Hub Supply Demand
in the form of cash or other securities. This protects
the lender from the risk of potential loss if the with a medium to long-term horizon and thus do not
borrower becomes insolvent and is unable to return need access to all of their securities on a daily basis. Primary Underlying
the lender’s securities. The value of the collateral Investors Intermediaries Borrowers Borrowers
provided by the borrower is normally greater than By lending securities, they can receive additional
the value of the borrowed securities, providing income without losing the benefits attached to those Pension Funds Custodial Banks Banks Hedge Funds
additional protection for the lender. securities, such as dividends and interest payments. Securities
The revenue generated can help reduce costs for
To further protect both parties from market investors, retail and pension plans in Europe. Alternative
fluctuations during the life of the transaction, Mutual Funds Direct Lenders Brokers Investment Funds
securities and collateral on loan are revalued on a The European Central Bank (ECB) and other national
daily basis and adjusted if needed. At the end of the Central Banks (NCBs) also use securities lending as Insurance Third Party Proprietary
transaction the borrower and lender return their part of their monetary policy. This is vital for price Companies Lenders Collateral Traders
respective securities and collateral to one another. stability, economic growth in the Eurozone, financial Sovereign & Fees
Securities are frequently lent on an open basis and stability, as well as an autonomous EU capital Wealth Funds
as such, can be recalled if the lender requires the market, which lessens external dependence and
securities back. These requirements form part of provides sufficient resources internally for European Central Banks
market standard legal agreements and the processes businesses.
are further supported by widely accepted best Whilst only accounting for a relatively small part
practices between market participants. of the market, retail investors have also begun to Retail Investors
utilise securities lending for incremental income via
Lenders are usually investors such as pension funds,
mutual funds including UCITS, insurance funds and a range of trading platforms and aggregators (firms
Sovereign Wealth Funds (SWFs), that typically invest that combine small retail holdings into tradeable Diagram showing the trade flow between the supply-side and the demand-side
volumes).

7 According to ESMA’s report on “EU Securities Financing Transactions markets 2024”, the total outstanding exposure of SFTs is EUR 9.8tn, as
of September 2023. Repos account for EUR 6.7tn or 68% of the total, securities lending for EUR 2.3tn (23%), buy-sell back for EUR 743bn
(8%), and margin lending for EUR 124bn (1%).