Sourcing Securities for Short Sales: The Proper Legal Characterization of Securities Loans

Abstract

This chapter considers the operation of securities loans as well as a recent decision of the Australian court that has tried to address the question of the proper legal characterization of securities loans. A securities loan, basically, involves the transfer of securities (shares or bonds) from a "lender" to a "borrower" in exchange for the borrower paying a fee to the lender. Securities loans effectively separate the legal incidents of ownership of securities from the economic incidents of ownership. The initial transfer of securities that takes place under a securities loan vests clear title to the securities in the borrower and that title carries with it enjoyment of the economic incident..