The legal structure and regulation of securities lending (Pt 1)

Securities lending is the temporary transfer of securities
(mainly shares) from one party to another. At the
conclusion of the loan, the borrower is required to deliver
equivalent securities to the lender. Securities lending is
an important and growing part of global market activity.
While it is said to perform valid and useful functions such
as increasing market liquidity, many—particularly during
the global financial crisis—have expressed concerns that
it also leads to market instability. Concerns with securities
lending have focused primarily on its role in facilitating
short selling. During the global financial crisis, markets
and regulators were concerned about the potential
destabilising effect of short selling on financial markets.1
Regulators across the globe took action to ban naked and
covered short selling.
This article undertakes a comprehensive examination
of the legal structure of securities loans in Australia. It
examines securities lending in Australia and other major
financial markets, namely Europe, the United Kingdom
and United States. This article examines the Australian and international industry standard form contracts. It also
considers the current regulatory environment for securities
lending in Australia.