Stock Loan Agreement - England and Wales

Stock Loan Agreement for the United Kingdom

Stock Loan Agreement Template for England and Wales

A Stock Loan Agreement under English and Welsh law is a legally binding contract that governs the temporary transfer of securities from one party (the lender) to another (the borrower) in exchange for collateral and fees. The agreement details the terms and conditions of the loan, including collateral requirements, fee structures, rights and obligations of both parties, default provisions, and termination arrangements. It incorporates relevant FCA regulations and UK financial services legislation, providing a comprehensive framework for securities lending transactions.

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What is a Stock Loan Agreement?

The Stock Loan Agreement is essential for facilitating securities lending transactions in the UK financial markets. It is primarily used when institutional investors wish to generate additional income from their securities holdings or when market participants need to borrow securities for trading strategies, settlement coverage, or regulatory requirements. The agreement, governed by English and Welsh law, provides detailed provisions for the loan transaction, including delivery mechanisms, collateral management, corporate actions, and risk mitigation measures. It incorporates regulatory requirements under the Financial Services and Markets Act 2000 and related legislation, while following market standard practices established by industry bodies.

What sections should be included in a Stock Loan Agreement?

1. Parties: Identification of the lender and borrower, including full legal names and addresses

2. Background: Context of the agreement and brief description of the transaction structure

3. Definitions: Key terms used throughout the agreement, including financial and technical terminology

4. Loan and Delivery: Core terms of the stock loan, including securities identification and delivery mechanisms

5. Collateral Arrangements: Details of collateral requirements, margin calls, and maintenance

6. Fees and Payments: Lending fees, payment schedules, and other financial terms

7. Events of Default: Circumstances constituting default and consequential actions

8. Termination: Provisions for ending the agreement and return of securities

What sections are optional to include in a Stock Loan Agreement?

1. Tax Provisions: Specific tax arrangements and responsibilities when parties are in different tax jurisdictions or specific tax implications need addressing

2. Regulatory Compliance: Specific regulatory obligations and commitments when either party is regulated or transaction has specific regulatory requirements

3. Market Disruption: Provisions for handling market disruption events in cases where securities are traded on volatile markets

4. Agency Provisions: Terms specific to agency arrangements when either party acts as agent rather than principal

What schedules should be included in a Stock Loan Agreement?

1. Schedule 1 - Form of Loan Confirmation: Template for confirming individual loan transactions

2. Schedule 2 - Eligible Collateral: List and specifications of acceptable collateral types

3. Schedule 3 - Margin Percentages: Details of applicable margin rates for different security types

4. Schedule 4 - Contact Details: Administrative and operational contact information

5. Appendix A - Standard Settlement Instructions: Details of settlement arrangements and account information

6. Appendix B - Tax Documentation: Required tax forms and documentation

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

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Financial Services and Markets Act 2000: Primary legislation governing financial services regulation in the UK, establishing regulatory framework and requirements for financial activities including securities lending

Companies Act 2006: Core company law legislation affecting corporate entities' ability to enter into stock lending arrangements and their disclosure obligations

Financial Services Act 2012: Updates to financial services regulation, including amendments to FSMA and establishment of FCA/PRA regulatory structure

Financial Collateral Arrangements (No.2) Regulations 2003: Specific regulations governing financial collateral arrangements, crucial for stock lending security arrangements

FCA/PRA Regulatory Framework: Regulatory requirements and guidance from both the Financial Conduct Authority and Prudential Regulation Authority applicable to stock lending

Market Abuse Regulation: Regulations preventing market manipulation and insider trading, relevant for stock lending transactions

UK EMIR: European Market Infrastructure Regulation as retained in UK law, governing derivatives and reporting requirements

Income Tax Act 2007: Tax legislation governing income tax treatment of stock lending transactions

Corporation Tax Act 2010: Corporate tax implications for stock lending transactions

Taxation of Chargeable Gains Act 1992: Tax treatment of capital gains in relation to stock lending arrangements

Uncertificated Securities Regulations 2001: Regulations governing electronic securities trading and transfer systems

Central Securities Depositories Regulation: Rules governing securities settlement and central securities depositories

Insolvency Act 1986: Legislation governing insolvency proceedings and their impact on stock lending arrangements

Banking Act 2009: Specific provisions for financial institutions, including special resolution regime

GMSLA Standards: Global Master Securities Lending Agreement standards providing industry-standard terms for stock lending

Common Law Principles: Fundamental contract law, equity, trust law and property law principles applicable to stock lending

Proceeds of Crime Act 2002: Anti-money laundering legislation affecting due diligence requirements in stock lending

Money Laundering Regulations 2017: Specific regulations regarding prevention of money laundering in financial transactions

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What is a Stock Loan Agreement?

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What sections are optional to include in a Stock Loan Agreement?

What schedules should be included in a Stock Loan Agreement?

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