Learn more about securities lending here.
Freetrade requires all customers to provide their consent to lend securities held in a General Investment Account (GIA) or a SIPP.
Securities will be lent in accordance with section 24.2 of our Terms and Conditions.
For more information, please review our terms and conditions and risk disclosure document.
When Freetrade exercises its right to lend your shares, we will then lend those shares to a counterparty (‘borrower’). It is important to remember that when Freetrade lends your shares we will ensure that we have received liquid collateral of greater value in return for the shares lent. You will therefore become the beneficial owner of the collateral until the shares are returned by the borrower.
Securities lending transactions indirectly expose you to counterparty credit risk. This is a risk when a counterparty - in this case, the borrower of your shares - does not fulfil their obligation to return your shares. This could arise because the borrower becomes insolvent.
We manage this risk by requiring borrowers to provide collateral that is greater than the value of the shares borrowed.
Collateral will take the form of either high quality, liquid assets, like government bonds, or cash.
The value of both the lent shares and the collateral held will move continually, as a result of movements in market prices. We therefore revalue the lent shares and collateral on a daily basis to ensure any value changes are reflected in the total collateral we hold for a transaction. This collateral is held by a third party custodian on behalf of Freetrade customers and is treated as safe custody assets under the applicable FCA rules.
In the unlikely event that the borrower defaults on their obligation to return the securities, Freetrade will take all reasonable measures to return equivalent shares to you.
In an insolvency, the collateral value should be greater than the value of your lent securities, but in a scenario where this was not the case, you may receive back collateral value that is less than the cost of replacing the shares.
The borrower becomes the legal owner of the shares while a loan is open. This means that you will temporarily lose ownership of those securities and any associated rights (i.e. voting rights). Dividends that may be paid while a loan is open will be repaid to Freetrade by the borrower and passed along to you. In some instances there could be a delay in you receiving your dividend for any lent securities.
Other corporate actions will be treated in the same manner as they are currently treated for shares that are not on loan. However, voting rights are held by the borrower during the time that a loan is open.
You remain free to sell your shares at any point. If you do sell some or all of a position that is being lent there are processes and controls in place to recall your shares from the borrower in time to ensure your sale settles in the normal timeframe.
These controls include Freetrade monitoring sale activity throughout the day and looking for opportunities to re-allocate the loan to another Freetrade customer. There could be instances where settlement of your sale is delayed beyond the normal settlement cycle - this will result in you not being able to withdraw those sale proceeds from your account until settlement (as happens today).
24.2 “Securities Lending”
24.2.1. During your Freetrade Account opening process or at a point thereafter, you will have provided your express consent to Freetrade lending securities held in your General Investment Account or SIPP Account (the "Lendable Securities") on the terms set out in this section 24.2 ("Securities Lending").
24.2.2. All customers must provide us with express consent to Securities Lending. Without such consent, you will no longer be able to place Instructions to buy Securities on existing Freetrade Account(s). You will remain able to place Instructions to sell Securities in order to wind down existing positions. We reserve the right to terminate any existing Freetrade Account(s) in accordance with section 33 of this Agreement, at a future date, should you continue to decline to provide your express consent to Securities Lending. Any securities held in your Freetrade ISA will not be eligible for Securities Lending.
24.2.3. By providing us with your explicit consent to Securities Lending, you acknowledge that you have granted Freetrade the right to use your Lendable Securities for securities lending transactions.
24.2.4. Until such time as we may exercise our right to use your Lendable Securities, those Lendable Securities will be treated as client assets and will be held by a Custodian in accordance with section 23 of this Agreement.
24.2.5. If Freetrade exercises its right to use the Lendable Securities, we will ensure that we have received liquid collateral of greater value in return for the securities lent. You will therefore become the beneficial owner of the collateral, as set out at clause 24.2.6 below. This means that during this time:
(a) you will no longer have ownership of the lent securities;
(b) section 23 of this Agreement will not apply to the lent securities; and
(c) you will not be able to exercise any shareholder rights (including any voting rights) in respect of the lent securities.
When the relevant securities lending transaction(s) are complete, Freetrade shall be obligated to return the lent securities to you.
It is not possible for you to select securities for participation in Securities Lending.
24.2.6. Freetrade will lend the Lendable Securities to a third party counterparty (the "Borrower"). In exchange for the Lendable Securities, an appointed third party lending agent will receive collateral from the Borrower for an amount greater than that of the loaned security value. Such collateral will be held on your behalf and monitored on an ongoing basis during the time period that the securities are lent.
Until such time as the securities lending transaction(s) are complete, the collateral will be designated as safe custody assets under the applicable part of the CASS sourcebook of the FCA Handbook and held by a third party manager in a segregated account on your behalf, together with collateral held on behalf of other Freetrade customers whose securities are being lent under this clause 24.2. In the unlikely event that the Borrower defaults on their obligation to return the securities, Freetrade will take all reasonable measures to return to you equivalent securities.
24.2.7. The collateral received under clause 24.2.6 above will be in the form of (a) High Quality Liquid Assets, which are designed to be liquidated easily and immediately into cash, with minimal or no loss of value, such as government bonds; or (b) cash.
24.2.8. Freetrade will be paid a fee by the Borrower in relation to any lent securities under this clause 24.2. This allows Freetrade to provide you with the ability to invest in stocks on a commission-free basis. Other applicable charges will continue to apply, as referred to at section 6 of this Agreement.
24.2.9. The right to use which you grant to us allows us to exercise our right to use your Lendable Securities to enter into securities lending transactions at our discretion. We will not notify you where we have exercised our right to use. Information setting out which of your Lendable Securities have been lent will be available via your monthly statement.
24.2.10. If your Lendable Securities are already on loan (i.e. we have exercised our right to use your Lendable Securities under this section 24.2) and you decide to sell an amount of the securities in your Freetrade Account that will mean selling the Lendable Securities, a recall process will be initiated. The recall process will involve returning your Lendable Securities to you, at which point your sell instruction will be completed. This recall process may delay the time it takes to settle your sell instruction (however this should not normally be the case).