Securities Borrowing and Lending (SBL) Singapore: Earning a Fee by Lending Out Shares You Already Own
How SGX’s SBL framework lets long-term shareholders generate passive income — and the counterparty risk that comes with it
Securities Borrowing and Lending (SBL) is an arrangement in which an investor who holds shares temporarily lends them, through a broker or custodian, to another party — typically a short seller needing shares to deliver on a short sale — in exchange for a lending fee, while the borrower posts collateral and the lender retains economic entitlement to dividends and voting rights through contractual compensation payments.
Not financial advice. All figures for educational reference only. Data as at October 2026.
- SBL lets long-term shareholders earn an extra yield on shares they already hold and intend to keep, by lending them out temporarily for a fee, typically facilitated through their broker or custodian.
- The primary demand for borrowed shares comes from short sellers, who need to borrow and sell shares they do not own in order to execute a short sale, and market makers who need shares to meet settlement obligations.
- Borrowers must post collateral, usually cash or securities worth more than the borrowed shares’ value, to protect the lender against the borrower’s default.
- A lender who lends out shares still receives compensation payments equivalent to dividends during the loan period, but typically loses voting rights for shares that are out on loan at a company’s record date.
- SBL carries counterparty risk — the risk that the borrower defaults and the posted collateral is insufficient to cover the shares’ value if their price rises sharply during the loan period.
Table of Contents
What Is Securities Lending?
Securities Borrowing and Lending is a long-established mechanism in developed equity markets, including on SGX, that connects two groups with opposing needs: long-term holders of shares (pension funds, insurance companies, and increasingly retail investors through their brokers) who are willing to temporarily part with legal title to their shares for a fee, and borrowers — most commonly short sellers — who need to borrow shares in order to sell them short, since a short sale requires delivering shares the seller does not yet own.
In Singapore, SBL is central to enabling legitimate short selling on SGX: regulated short selling requires the seller to have a confirmed source of borrow (either already arranged or reasonably able to be arranged) before executing the trade, a rule designed to prevent uncovered or “naked” short selling, which SGX and the Monetary Authority of Singapore restrict. SBL also supports market-making activity, allowing designated market makers and liquidity providers to borrow shares to fulfil their quoting obligations without needing to hold large inventories of every security they make markets in.
For retail investors, SBL has historically been accessible mainly through institutional channels, but some Singapore brokers now offer share-lending programmes that let retail CDP or custodian account holders opt in to lend out shares they already hold for the long term, earning an incremental fee on an asset that would otherwise sit idle in their portfolio.
How It Works in Singapore
A typical SBL transaction involves three steps: first, the borrower (often a short seller’s broker, on their client’s behalf) identifies available shares through a lending pool, often aggregated across many lenders’ custodian or CDP-linked accounts; second, the borrower posts collateral — commonly 105% to 140% of the market value of the borrowed shares, in cash or highly liquid securities — to protect against the lender’s loss if the shares cannot be returned; and third, the loan runs for an agreed or open-ended period, with the lending fee (quoted as an annualised percentage) accruing to the lender throughout.
| Participant | Role in SBL |
|---|---|
| Lender | Long-term shareholder (fund, insurer, or retail investor via broker programme) who temporarily transfers legal title for a fee |
| Borrower | Typically a short seller or market maker needing shares to sell or deliver |
| Intermediary | Broker, custodian, or prime broker facilitating the match and collateral management |
Source: SGX market practice on securities lending and short selling rules, as described in SGX regulatory guidance, 2026.
Throughout the loan, the borrower is legally entitled to the shares — including voting rights at the record date, should one fall during the loan period — but is contractually obligated to pay the lender a “manufactured dividend” equivalent to any dividends the shares would have earned, so the lender’s economic position (aside from voting rights and the lending fee itself) is largely unaffected. The loan is typically recallable, meaning the lender can usually demand the shares back, for example to vote at an AGM or to sell the position outright, subject to the borrower’s ability to return them within a settlement cycle.
Worked Example
Consider a long-term investor holding $200,000 worth of a blue-chip bank counter who has no intention of selling for several years. Through her broker’s share-lending programme, she lends a portion of these shares to a short seller for an annualised lending fee of 0.5%, generating roughly $1,000 a year in additional income — on top of the dividends she continues to receive via manufactured dividend payments — provided the shares remain on loan for the full year and are not recalled. The borrower posts collateral of around $220,000 (110% of market value) to protect her against default.
If the bank’s share price rises sharply to $260,000 in notional value while the loan is outstanding and the borrower defaults before posting additional collateral, the $220,000 collateral may fall short of replacing the shares at their new, higher value — illustrating the collateral and counterparty risk a lender accepts in exchange for the lending fee, particularly during periods of rapid price appreciation.
Advantages
- Incremental income on an idle holding. For a long-term investor who has no intention of selling, lending out shares generates an additional yield without giving up economic exposure to dividends.
- Supports healthy price discovery. By enabling legitimate, regulated short selling, SBL helps markets incorporate negative information into prices and provides liquidity that benefits all market participants, including long-only investors.
- Collateralised structure. Borrowers must post collateral exceeding the value of borrowed shares, providing the lender a buffer against borrower default.
- Shares typically remain recallable. Lenders generally retain the right to recall their shares, for example to vote or to sell, preserving flexibility despite the loan.
Risks and Limitations
- Counterparty and collateral risk. If the borrower defaults and the share price has risen sharply since the loan began, the posted collateral may not fully cover the cost of replacing the borrowed shares.
- Loss of voting rights during the loan. A shareholder whose shares are on loan at a company’s record date for a shareholder vote typically cannot vote those shares unless they successfully recall them in time.
- Facilitates short selling against the lender’s own holding. By lending shares, an investor may be indirectly enabling a short seller to bet against the very company the lender is bullish on — a conflict some long-term investors prefer to avoid.
- Tax and reporting complexity. Manufactured dividend payments received in lieu of actual dividends can be treated differently for tax purposes in some jurisdictions, adding complexity versus simply holding the shares outright.
SBL vs Short Selling
| Feature | SBL | Short Selling |
|---|---|---|
| What it is | The lending mechanism that supplies borrowed shares | The trading strategy that uses borrowed shares to bet on a price fall |
| Who initiates it | The long-term shareholder (lender) or their broker on the lender’s behalf | The short seller, who needs to borrow shares via SBL to execute the trade |
| Economic exposure | Lender keeps dividend-equivalent income and typically retains upside/downside on the shares | Short seller profits if the price falls, loses if it rises |
| Regulatory role | Enables compliant (covered) short selling by providing a confirmed source of borrow | Subject to SGX and MAS short-selling disclosure and uptick-related rules |
| Risk borne | Counterparty/collateral risk | Unlimited loss risk if the share price rises sharply |
The Bottom Line
Securities Borrowing and Lending quietly underpins a healthy, liquid stock market by letting long-term shareholders monetise shares they intend to hold anyway, while giving short sellers and market makers the borrowed inventory they need to operate within SGX’s regulated short-selling framework. For retail investors, participating in a broker’s share-lending programme can add a modest, largely passive income stream, provided the collateral and counterparty safeguards are understood.
Related Terms:
Frequently Asked Questions
Can retail investors in Singapore lend out their shares?
Some Singapore brokers offer securities lending programmes that let retail CDP or custodian account holders opt in to lend shares they already hold, earning a fee, though availability and terms vary by broker.
Do I still receive dividends if my shares are on loan?
Yes, in substance. The borrower is contractually required to pay the lender a manufactured dividend equivalent to what the lender would have received had the shares not been lent out.
What happens to my voting rights if my shares are lent out?
Shares on loan during a company’s record date for a shareholder vote are generally voted by the borrower, not the original lender, unless the lender successfully recalls the shares before the record date.
Why do short sellers need SBL?
A short sale involves selling shares the seller does not own, which requires first borrowing those shares to deliver to the buyer — SBL is the mechanism that supplies this borrowed inventory.
What collateral do borrowers typically post in an SBL transaction?
Borrowers typically post collateral — commonly cash or liquid securities — worth more than the market value of the borrowed shares, often in the range of 105% to 140%, to protect the lender against default risk.
Disclaimer: This glossary entry is for educational purposes only and does not constitute financial advice. Data sourced from official regulator and industry websites as at October 2026.