Securities lending explained

Cash-collateral reinvestment

Cash-collateral reinvestment is the process of taking the cash which is placed as collateral on the securities loaned, and reinvesting this cash in other financial-products or money markets to generate additional revenue.
The reinvestment of cash collateral is performed by the lender, who accrues the interest on the value of the reinvestment.

Securities lending is an almost universally profitable enterprise for investors, and this remained true even during the great contraction in late 2008. Cash-collateral reinvestment is an optional secondary activity which introduces additional risk to the lender.

In the build-up to 2008, AIG used cash-collateral reinvestment as part of their securities lending programme. During the ensuing fallout, it transpired that AIG had reinvested their cash collateral into illiquid Mortgage Backed Securities. As a result, liquidity and financial risk rose to a level that threatened the survival of the institution itself, as well as wider financial stability.

In this case, the consequence of an aggressive reinvestment strategy was that the cash no longer served as a form of risk mitigation but rather increased the risk the lender was exposing itself to.

Sharegain operates on a non-cash collateral basis exclusively and hence you will never be involved in cash reinvestment.

Have more questions?

With securities lending, as with other investment activities, your capital may be at risk.

Sharegain Ltd. is registered in England and Wales (no. 09600298) and is authorised and regulated by the Financial Conduct Authority (no. 730395).
*This website is directed exclusively at and intended to be used only by professional investors and retail investors with direct holdings in stocks, bonds and ETFs in excess of £500,000. Our website is not directed at any person or institution where (by reason of nationality, residence or otherwise) the availability of our website or securities lending in general is prohibited. The material on this website is for general information and should not be considered as investment advice or solicitation to be involved in securities lending or to use one of Sharegain’s services. Securities lending involves risks and we have not and will not assess whether our service is appropriate for you. If you decide to lend your securities, your capital may be at risk. Please consult professional advisors if you are in any doubt as to whether the service would be beneficial for you or whether you require any consent or need to observe any formalities, before deciding to engage in securities lending.
© Copyright 2021 Sharegain Ltd

+44 (0) 20 3884 2405        9 Dallington St, London EC1V 0LN