In investment banking, the term “loan of securities” is also used to describe a service offered to large investors that can allow the investment bank to lend its shares to other people. This often happens for investors of all sizes who have mortgaged their shares to borrow money to buy more shares, but large investors like pension funds often choose to do so to their non-mortgaged shares because they receive interest. In such agreements, the investor continues to receive dividends as usual, the only thing he can usually not do is choose his shares. The terms of the loan are governed by a “Securities Lending Agreement” which requires the borrower to provide the lender with collateral in the form of appropriate cash or securities, or above the borrowed securities, plus the agreed margin. The subset of non-cash collateral, including equities, government bonds, convertible bonds, corporate bonds and other financial products, is not related to the means of payment. In 2011, FINRA issued an investor alert for equity-based credit programs.  In the warning, FINRA recommended that investors ask several questions, including: 1) What will happen to my action as soon as I guarantee it? (FINRA states that securities should never be sold to finance loans); 2) Did the lender control the finances? (FINRA found that all major publicly traded brokers/banks that should have had verified financial data for investors) and 3) Is the institution that manages the loan and accounts fully authorized and reputable? The main reason for borrowing a security is the coverage of a short position. Because you have an obligation to provide security, you must borrow it. At the end of the agreement, you must return an equivalent guarantee to the lender. The equivalent means fungible in this context, i.e.
the securities must be totally interchangeable. Compare that to the loan of a 10 euro note. They don`t expect exactly the same rating as any 10 euro note. The term “loan of securities” is sometimes used correctly in the same context as an “equity loan” or a single “guaranteed loan.”