7th Dec 2009 by David Becker
Securities lending is an financial service in which a lender will use securities such as stocks or bond as collateral. When issuing the loan, the securities lend will use a hair cut or a portion of the securities owned to calculate how much to lend. The securities are pledged to the lender as collateral, and the hair cut protects the lender against an adverse move in the markets. For example, if $100 of securities was in an account, a securities lender might hair cut the account by 40% when making the loan. This way, if the market fell by 40%, the lender would still be protected and have sufficient collateral.
Like This Answer?
This answer is the subjective opinion of the writer and not of FinancialAdvisory.com