Securities Lending

What this video covers

• The three-party securities lending flow: how a securities lender, borrower, and collateral fit together to enable a legal short sale
• The critical distinction between easy-to-borrow and hard-to-borrow securities, and why a general locate is sufficient for the former but a pre-borrow arrangement is mandatory for the latter
• What constitutes a fail to deliver (FTD), including naked short selling, operational errors, and failed locates as root causes
• The Regulation SHO close-out deadlines: T plus 2 for short sale fails versus T plus 4 for long sale fails and bona fide market-maker fails
• How the penalty box restriction cascades from the failing broker-dealer up to its clearing firm and every correspondent broker-dealer that clears through it
• Why a general locate is banned entirely inside the penalty box, requiring an actual pre-borrow or arranged borrow before any new short sale order in that security
• What makes a close-out transaction a sham: the participant knows or has reason to know the purchased or borrowed securities will not actually be delivered