What is Securities Lending and Borrowing?

Securities Lending and Borrowing (SLB) is a regulated financial mechanism in which securities are temporarily transferred from a lender to a borrower, with the borrower providing acceptable collateral and paying an agreed-upon lending fee. The ownership of the securities remains with the lender, while the borrower gains temporary access to the securities for specific purposes.
It plays a pivotal role in enhancing liquidity, supporting price discovery, and enabling advanced investment strategies in modern capital markets.

Key Parties in SLB:

• Lender: Entity that lends securities to earn additional income from idle holdings.
• Borrower: Entity that borrows securities for purposes like short selling, market making, or settlement obligations.
• Collateral Provider: The Borrower must post eligible collateral—such as cash or securities—to mitigate credit risk.
• Agent: Licensed intermediaries (custodians, brokers, or banks) who facilitate SLB transactions.

Why Securities Lending & Borrowing Matters?

Securities Lending & Borrowing SLB adds flexibility and resilience to capital markets. It enables smoother settlement, supports hedging strategies, and improves the overall trading environment. Globally, SLB is considered a vital tool for market liquidity and investment performance.

Key Features of the SLB Mechanism:

• Temporary Transactions: All loans are finite and must be returned per agreement.
• Fully Collateralized: Reduces counterparty risk for Lenders.
• Market Liquidity Boost: Increases securities availability and trading volumes.
• Supports Price Discovery: Balances long and short positions for transparent pricing.

Abu Dhabi Depository Securities Lending and Borrowing Service

As the official Central Securities Depository (CSD) of Abu Dhabi, AD CSD provides the regulated framework and centralized infrastructure to facilitate streamlined and secure Securities Lending and Borrowing (SLB) transactions across the Abu Dhabi Securities Exchange (ADX). Our commitment ensures that SLB activities are conducted with the highest standards of integrity, transparency, and operational efficiency within the UAE capital market.

AD CSD facilitates Securities Lending and Borrowing (SLB) transactions to unlock market liquidity and drive trading efficiency by ensuring:

• Regulated Framework: Operations conducted under robust UAE regulatory oversight, fully aligned with international best practices.
• Centralized Processing: Efficient, secure, and transparent handling of SLB transactions through a unified platform, encompassing:
  • Reliable settlement and safekeeping of loaned securities.
  • Transparent and accurate processing of collateral transfers (when applicable).
  • Verification and validation of all SLB transaction instructions.
  • Full operational support for both opening and closing legs of the transaction.
• Liquidity Enhancement: Strengthening market depth and trading flexibility across ADX by enabling institutional and retail participation in SLB.
• Global Standards & Compliance: Strict adherence to UAE financial regulations and global standards for financial market infrastructure.

By providing this trusted framework for SLB activity, AD CSD significantly enhances liquidity, transparency, and investor confidence in the UAE capital market. 

How Securities Lending and Borrowing Works at AD CSD

Securities Lending and Borrowing (SLB) at Abu Dhabi Depository (AD CSD) is facilitated through authorized Agents acting on behalf of Lenders and Borrowers. The process follows a structured workflow as outlined below:

1. Agreement to Participate: The Borrower and Lender to participant an SLB transaction through an authorized Agent.
2. Loan Open Request: The Agent submits a request to transfer the loaned securities, including key details such as:
   • Security name and identifier
   • Quantity
   • Transfer date
   • Investor Account Numbers for both parties
   • Date of Loan Open
3. Collateral Transfer (If Applicable): If the collateral is a security listed on Abu Dhabi Securities Exchange (ADX), a separate request is submitted to transfer the collateral from the Borrower to the Lender.
4. Verification and Opening Leg Execution: AD CSD verifies and validates all submitted details. Upon confirmation, the loaned securities are transferred from the Lender’s account to the Borrower’s account, completing the opening leg of the transaction.
5. Return of Loaned Securities:The Agent submits a request to return the loaned securities—either partially or fully—with necessary details, including:
   • Security name
   • Quantity to be returned
   • Return date
   • Investor Account Numbers
   • Date of Loan Return
6. Return of Collateral (If Applicable): Where applicable, the collateral is transferred back from the Lender to the Borrower.
7. Verification and Closing Leg Execution: AD CSD verifies the return request and confirms the transfer of securities from the Borrower’s account back to the Lender’s account, completing the closing leg of the SLB transaction.

Note: During the lending period, the Borrower is recorded as the legal and beneficial owner at AD CSD.

Who Can Participate?

SLB at AD CSD is open to a wide range of investors and market participants, provided they meet the eligibility criteria:

Eligible Participants

• Investors holding a valid Investor Number (NIN) with AD CSD, whether acting as a lender or borrower.
• Licensed custodians, trading brokers, market makers, and local banks, branches of foreign bank, A foreign company licensed by supervisory authority (as Agents).

Accepted Securities

AD CSD facilitates the safekeeping and settlement of a diverse range of financial instruments, including:

• Shares issued by public joint stock companies
• Bonds and promissory notes issued by shareholding companies
• Government bonds and promissory notes issued by:

  a) The UAE Federal Government
  b) Local governments
  c) Public authorities
  d) State-owned corporations

• Other local and international financial instruments approved by the relevant authority.

By ensuring transparent processes, robust operational controls, and alignment with international standards, AD CSD enables market participants to engage in SLB with confidence. This contributes to a more liquid and resilient capital market, supporting the strategic development of the UAE’s financial ecosystem.