Securities Lending Singapore
How You Can Earn Extra Income by Lending Out Shares You Already Own
Securities lending is a transaction where an investor temporarily lends shares they own to another party, usually through their broker, in exchange for a fee, while the borrower posts collateral and typically uses the borrowed shares to facilitate short selling or settlement.
Not financial advice. All figures for educational reference only. Last updated: October 2026.
Key Takeaways
- Securities lending lets long-term shareholders earn additional income on stocks they already hold and don’t plan to sell in the near term, on top of any dividends.
- The borrower — often a hedge fund or market maker needing shares to cover a short sale — posts collateral, typically cash or other securities, usually worth more than the value of the borrowed shares.
- Several Singapore brokerages, including some offering CDP-linked and custodian accounts, provide securities lending programmes that investors can opt into for eligible stocks.
- Lenders usually retain economic exposure to dividends through a ‘manufactured dividend’ payment from the borrower, though the tax and timing treatment can differ slightly from a normal dividend.
- The main risk is counterparty and collateral risk — if the borrower defaults, the lender depends on the posted collateral being sufficient and quickly realisable to make them whole.
What Is Securities Lending?
Securities lending is a long-established practice in global financial markets where an investor who owns shares — the ‘lender’ — temporarily transfers those shares to a borrower in exchange for a fee, while retaining the right to recall the shares and typically receiving compensation equivalent to any dividends paid during the loan period.
Borrowers are usually institutional players such as hedge funds, market makers, or other brokerages, who need to borrow shares for purposes like facilitating a short sale (selling borrowed shares now, hoping to buy them back later at a lower price), covering a settlement shortfall, or supporting market-making activities that keep trading liquid.
To protect the lender, the borrower is required to post collateral — often cash or other liquid securities — typically valued above the market value of the borrowed shares, known as ‘over-collateralisation’. This collateral is held and marked to market regularly, so if the value of the borrowed shares rises, the borrower must post more collateral to keep the arrangement adequately secured.
How Does It Work in Singapore?
In Singapore, individual retail investors typically don’t lend shares directly to other market participants — instead, this happens through a structured programme offered by their brokerage or custodian, which pools eligible client shares and lends them out to approved institutional borrowers, sharing a portion of the lending fee income back with participating shareholders.
Shares held under a nominee or custodian account structure (rather than shares held directly in your own name via CDP) are typically the ones eligible for a broker’s securities lending programme, since the broker needs operational control over the shares to lend them. Investors usually need to actively opt in, and the income generated depends heavily on how much demand exists to borrow a specific stock — harder-to-borrow or high-short-interest stocks typically command higher lending fees than widely-held, easily available blue chips.
| Party | Role |
|---|---|
| Lender (you) | Owns shares, opts into lending programme, earns a fee |
| Broker/custodian | Administers the programme, matches borrowers, manages collateral |
| Borrower | Borrows shares for short selling/settlement, posts collateral, pays fee |
Source: general structure of brokerage securities lending programmes; specific terms, fee splits, and eligibility vary significantly by provider.
Worked Example
A Singapore investor holds 10,000 shares of a mid-cap SGX-listed stock in a custodian account and opts into her broker’s securities lending programme. A hedge fund wants to borrow 2,000 of her shares to facilitate a short sale and is willing to pay a lending fee equivalent to an annualised rate of 2% on the value of the borrowed shares, which are currently worth S$10,000 (2,000 shares at S$5.00).
Over the period the shares are on loan, she earns additional income from the lending fee — roughly S$200 over a full year at that rate, split according to her broker’s revenue-sharing arrangement — on top of any dividends the company pays, which she typically still receives as a manufactured payment equivalent from the borrower.
Advantages
Extra income on existing holdings. You earn additional yield on shares you already own and intend to hold long-term, without having to sell or change your investment strategy.
Passive and broker-managed. Once you opt in, the broker handles matching, collateral management, and administration — you don’t need to actively find or negotiate with borrowers yourself.
Over-collateralisation provides a safety buffer. Borrowers typically post more collateral than the value of the borrowed shares, reducing (though not eliminating) the lender’s exposure to borrower default.
You generally keep dividend-equivalent income. Lenders typically still receive a payment equivalent to dividends declared during the loan period, so the economic exposure to the stock is largely preserved.
Risks and Limitations
Counterparty risk. If the borrower defaults and the posted collateral is insufficient or difficult to liquidate quickly, the lender could face a loss or delay in recovering their shares.
Reduced control during the loan period. While lenders typically retain the right to recall shares, there can be a short delay, which may matter if you need to sell quickly or exercise voting rights tied to a specific record date.
Tax treatment of manufactured payments can differ. The substitute payment you receive in lieu of a dividend may be treated differently for tax purposes in some jurisdictions compared to an actual dividend, so it’s worth understanding how your broker structures this.
Income is not guaranteed or consistent. Lending fee income depends entirely on borrower demand for your specific stock, which can be minimal or zero for widely-held, low-short-interest blue chips.
Comparison Table
| Feature | Securities Lending | Just Holding Shares (No Lending) |
|---|---|---|
| Extra income potential | Yes, variable lending fee | No, dividends only |
| Counterparty risk | Yes, mitigated by collateral | None |
| Dividend-equivalent income | Usually preserved via manufactured payment | Direct dividend received |
| Effort required | Low — opt-in, broker manages it | None |
The Bottom Line
For Singapore investors with a long-term buy-and-hold portfolio, securities lending can be a reasonable way to squeeze extra yield out of shares that would otherwise sit untouched — but it introduces counterparty risk that doesn’t exist with a simple, unlent shareholding, so it’s worth understanding your specific broker’s collateral and recall policies before opting in.