What is Securities Lending?

By Stash Team
Last updated: June 10, 2026

Securities lending is a way to earn lending income from investments you already own. You temporarily lend eligible securities, such as stocks or ETFs, to a financial institution. In return, you may receive a portion of the loan fee.

That sounds simple. The fine print matters.

When your shares are on loan, you still have market exposure. If the stock price rises, you still benefit from that price movement. If it falls, you still take the loss. But you may give up voting rights, receive substitute dividend payments with different tax treatment, and lose SIPC coverage on the securities while they are loaned.

Securities lending can be a legitimate feature. It is not magic yield. It is not a replacement for a long-term investing plan. Think of it as a possible side benefit with tradeoffs you should understand before enrolling.

What is a security?

A security is a financial asset you can invest in. On Stash, that generally means single stocks and ETFs. You can learn more about the difference between these two investment types here.

In securities lending, the owner of a security is the lender. The financial institution that borrows it is the borrower. Borrowers may include broker-dealers, banks, market makers, or hedge funds.

What is securities lending?

Securities lending is the temporary loan of securities from one party to another. The borrower provides collateral and pays a loan fee. The lender receives a portion of that fee, depending on the program terms.

Retail investors usually encounter this through a fully paid securities lending program. Fully paid means the securities are paid for in full and are not being purchased with borrowed margin funds.

A plain-English analogy: imagine you own a bike. You still own it, but you let a shop rent it out for a day. The shop gives you collateral and pays you a cut of the rental fee. You may earn some extra income, but you cannot ride the bike while it is rented. With securities, the tradeoff is not about riding a bike. It is about voting rights, dividend treatment, SIPC coverage, and borrower-default risk.

Why would someone borrow securities?

Institutions borrow securities for several reasons, including:

• Short selling

• Settling trades

• Market making

• Hedging other positions

• Supporting liquidity in the market

Short selling gets the most attention. A short seller borrows shares, sells them, and hopes to buy them back later at a lower price. That can sound odd if you are a long-term investor. But securities lending is part of how modern markets operate.

Stash has a strong point of view here: borrowing and short-term trading are not the same as building wealth over time. Most everyday investors are better served by investing consistently, diversifying, and thinking in years, not headlines.

How does securities lending work?

Here is the basic flow:

1. You enroll in a securities lending program, if available.

2. Eligible securities in your account may be selected for lending.

3. A borrower requests those securities.

4. The borrower provides collateral, typically cash or other approved collateral.

5. The securities are loaned out.

6. The borrower pays a fee.

7. You receive your share of the lending income, often monthly.

8. The loan can end when the borrower returns the securities or when they are recalled.

The loan fee changes with supply and demand. A heavily traded stock with lots of available shares may pay very little. A hard-to-borrow stock may pay more. Rates can change quickly, and securities may not be lent every day.

A simple securities lending example

Say you own 100 shares of a stock trading at $20 per share. Your position is worth $2,000.

If those shares are loaned for 30 days at a 5% annualized lending rate, the total lending fee before any program split would be roughly:

$2,000 x 5% x 30/360 = $8.33

If the annualized lending rate were 0.5% instead, the fee would be about $0.83 for the same 30-day period.

Your actual payment depends on the lending rate, how long your shares are on loan, whether they are actually borrowed, and how your brokerage shares lending revenue with you. Taxes may also reduce what you keep.

That is why securities lending should be viewed as potential extra income, not a core investing strategy.

What are the benefits of securities lending?

The main benefit is the potential to receive lending income while continuing to own the investment economically.

That means:

• You may receive monthly lending payments when your securities are borrowed.

• You still participate in price gains or losses while the security is on loan.

• You can generally sell the security, even if it is currently loaned.

• You may earn income from securities you were already planning to hold.

For long-term investors, that last point is the appeal. You are not changing your investment thesis just to chase a hot trade. You are allowing eligible holdings to be loaned under a program with stated terms.

What are the drawbacks?

Securities lending has real tradeoffs.

The biggest mistake is treating securities lending as found money. It is a financial arrangement. Read the agreement before opting in.

Are loaned securities SIPC protected?

Securities that are loaned out may not be protected by Securities Investor Protection Corporation coverage during the loan.

As of 2026, SIPC generally protects customers up to $500,000, including up to $250,000 for cash, if a brokerage firm fails and customer assets are missing. SIPC does not protect against normal investment losses. And it generally does not cover securities you have lent through a securities lending program while those securities are on loan.

That does not mean the loan is unsecured. Securities lending programs require collateral. But collateral is not the same as SIPC coverage.

You can read more about SIPC protection directly from SIPC.

Can my investments be lost in a securities lending program?

Securities lending programs are designed to reduce the risk that loaned securities are not returned. Borrowers must provide collateral, and fully paid securities lending programs generally require collateral worth at least 100% of the market value of the loaned securities. Many programs mark collateral to market daily, meaning the collateral is adjusted as the value of the loaned security changes.

Still, risk is not zero. If a borrower defaults and the collateral is not enough, or if there are operational issues during a stressed market, you could face a loss or delay.

This is the honest version: collateral helps protect you, but it does not make the arrangement immune to problems.

Can I sell securities while they are on loan?

Generally, yes. If you sell a security that is currently loaned, the broker typically recalls the shares or otherwise manages the settlement process.

From your perspective, the ability to sell is usually not the biggest issue. The bigger issue is whether you are comfortable with the lending program terms while you continue to hold the investment.

What is a dividend in lieu?

When a security is on loan, the borrower may receive the actual dividend. The borrower then passes an equivalent amount back to you as a payment in lieu of dividend, sometimes called a substitute payment.

The dollar amount may match the dividend, but the tax treatment can differ. Qualified dividends may receive favorable tax treatment for some investors. Payments in lieu of dividends are often taxed as ordinary income.

Tax rules depend on your situation. Consider speaking with a tax professional if dividend treatment matters to you.

Can I still vote on my loaned securities?

Usually, no. The borrower of the securities has the right to vote, or take similar shareholder actions, if the record date or voting deadline falls while the securities are on loan.

That may not matter to every investor. But if you care about voting on company leadership, shareholder proposals, mergers, or other corporate actions, it matters.

Some programs may recall shares before important votes, but you should not assume that will happen automatically. Check the program agreement.

Is securities lending safe?

Safe is too broad a word. Securities lending is regulated, collateralized, and widely used. It also introduces risks you would not have if your securities were not lent.

A better question is: are the potential lending payments worth the tradeoffs for you?

If the income is tiny, giving up voting rights and adding tax complexity may not feel worth it. If a security is in high demand and the loan rate is meaningful, you may view the tradeoff differently.

The Stash view: do not let a side feature distract you from the main job. Build a diversified portfolio. Invest for the long term. Understand what you own and what you have agreed to.

How does securities lending work with my Stash account?

If securities lending is available for your Stash account, only eligible securities may be lent. Program details, eligibility, payment timing, collateral, and opt-out rules are governed by the applicable securities lending agreement.

At Stash, securities lending may apply to eligible whole shares. Fractional shares may be treated differently depending on program terms. If your securities are loaned, you may receive lending income, but you may also give up voting rights and receive payments in lieu of dividends.

If you want to learn more about securities lending and how it works with your Stash account, go here.