Who Lends Against Stocks
When you borrow against your stocks, you enter a three-way agreement with your
lender and your custodian bank, where your stock will be held for the loan term.
You may be wondering who typically lends against stocks like yours.
There’s a wide range of financial institutions that participate in stock loans.
Here are a few typical examples:
1. Investment firms.
Plenty of investment firms, both large and small, lend against stocks on behalf of their clients. A growing number of investment firms now offer stock loans, for a variety of reasons. Borrowing against securities benefits investment firms by adding liquidity to the market, and increasing operational efficiency.
The most well-known of financial institutions, banks frequently will lend against stocks. Typically, banks will have strict rules about which types of stocks they will or will not lend against. They’ll typically have a base lending rate, and may have a set schedule for you to pay back your loan.
Broker-dealers are common lenders against stocks. This type of firm focuses on the business of trading securities, either on behalf of its own account, or those of its clients. Some broker-dealers act as independent firms, while others are subsidiaries of larger commercial banks or investment companies.
4. Market Makers.
This is a specific type of broker-dealer firm that acts as an intermediary and directly buys or sells securities and other assets. Market makers frequently will lend against stocks.
5. Hedge funds.
Hedge funds are alternative investment funds which use pooled capital from a number of individuals or institutions to make investments. Hedge funds are among the largest lenders against securities.
As you can see, all kinds of top-notch financial companies act as lenders on stock loans. With so many options, it’s vital to fully assess your choices, and select the stock loan offer that best fits your needs.