Why should I choose an institutional stock loan over a transfer-of-title stock loan or securities finance program?

When you give up title to your stocks, you are giving up legal ownership of your assets in every way except through the lender's contract, what is sometimes called "beneficial ownership." This means that your security is in effect the contract backed by the financial health and stability of your lender. When a transfer-of-title lender is ready and willing to provide you with third-party professionally audited financials so you can ascertain their stability to return your shares when your loan is repaid, you can proceed with some measure of confidence. (We recommend a standard as follows: Liquidity equal to no less than 10 times the amount needed to repurchase every share of every outstanding loan under lender's management projected out over no less than 12 months, verified by a fully licensed CPA or attorney in good standing).

The problem is that most transfer-of-title lenders refuse to provide licensed CPA or attorney-certified financial statements (which need to be updated at least quarterly). Often the reason given is that such information is "proprietary" or that their "counsel" won't allow it, for example. Thus, the transfer-of-title lender is in such cases is in effect asking you to "trust" them when they refuse to provide such verification of financial standing - a major reason why regulators frown upon these types of transactions nowadays.

In most transfer-of-title loans, some or all of the shares are sold to create the cash to fund the loan. Often times their right to do so is buried within the loan contract that you must sign to proceed, and you might never realize that your shares will be sold outright to raise funds to deliver your loan if you haven't read over the contract with care. If your transfer-of-title lender fully discloses that they may sell all or part of the portfolio in the process of funding your loan, and do so clearly (not in small fine print) and you have third-party, professionally certified and updated financial information available (asset versus liability) and on file (not just verbal statements, but actual signed copies) and if you prefer this type of loan, you can proceed as long as you understand that the IRS may treat the loan as a sale for tax purposes (consult with your licensed tax professional to confirm actual status).

An institutional stock loan like the ones we offer here have none of these drawbacks. Shares do not change title, but remain your property at all times. The shares remain in your own personal account at the brokerage funding your loan, accessible to you in person, on the phone, or online, as would be the case with any modern brokerage account. The shares are not sold to fund the loan; instead, an enhanced credit facility that we've arranged through the institution is tapped and re-oriented into a full-featured, low-interest, interest-only loan. With the floating rate version of the loan, prepayment is any time and without penalty (prepayment anytime with a nominal sliding-scale penalty possible with fixed rate variant).

The issue of due diligence with our loans has been in effect competed for you by U.S. regulatory authorities already since the loans are managed, underwritten, guided, counseled, and administered in full by a top-tier, fully regulated, SIPC-member brokerage's private wealth management and banking operation. That translates into royal treatment from a brokerage/banking firm that has had to meet all required government standards for asset security and licensure, standards that are more rigorous now than ever in the aftermath of the recent worldwide recession.

That also means the same full disclosure and client rights that any client of any U.S. bank or brokerage has under the law, It means public, open, easily available facts on your lending institution; no obligations of any kind until and unless you arrange a loan contract you wish to sign; loan funds deposited directly into your account with no transfer issues or delays; and a simple lien on the collateral shares rather than a change of title to lender. Loan-to-value for this facility is as high as 95% for select government-issued securities; rates are as low as 3%. Fully licensed advisors manage this credit facility for your benefit as well. We've aimed, in short, for the perfect marriage of institutional security and private-sector flexibility, and we believe we've achieved that melding with our current loan programs.

Transfer of title to a private third party or retention of your shares in a top-tier brokerage in your own account and title? The choice will of course be entirely yours to make but we counsel caution and good due diligence with any program that involves the complete transfer of your shares into any other party's name.

Will we need a large portfolio of securities to participate in this loan program? Do I need multiple securities in my portfolio?

No. Portfolio's as small as $120,000 are eligible for these loan facilities. The main consideration, particularly for smaller securities portfolios, is that the stocks, bonds, mutual funds, etc. in the portfolio are of sufficient price and trading volume - what you might call - "quality" - to achieve loan eligibility for underwriting purposes. Most marketable securities with a reasonable track record will qualify under this standard for at least one quote. Diverse portfolios of multiple quality securities will naturally get the best quotes. For more on loan eligibility, please see our stock loan / securities loan criteria page. (Keep in mind too that this loan facility will also accept "securities-like" assets, such as fully appraised and professional certified artwork).

Please keep in mind that although we welcome all potential clients, those with single stock concentrations may be subject to regulator limits governing the number of shares that can be pledged for a loan. This loan facility has been optimized for the kind of multi-security portfolios owned by high net-worth clients, and independent investment advisors looking for an alternative to the sale of their securities for cash liquidity within a fully regulated and licensed major U.S. brokerage that will meet compliance requirements.

Are we held only to the loan quote(s) provided on their Term Sheet?

No. Your Term Sheet represents your initial loan offer, your minimum offer as it were and at the least a good yardstick by which to estimate your final loan terms. You can avail of that offer, or request modifications in concert with your registered account advisor after we've received your Term Sheet. Our goal is to get you to the place where you can establish the exact securities financing you desire, on your terms to the extent possible.

The progression, incidentally, is quite simple. One of our staff will speak with you directly when you first inquire, and you will receive either a confidential Concentrated Position Worksheet (if you have a single stock) or a Rate Request Form (for multi-stock portfolios and all other securities; we are willing to fill out the latter for you if we have a legible account statement). Once you fill this out your lender will analyze your collateral in underwriting and we will then deliver your Term Sheet. You will sign your no-obligation Term Sheet to signify your understanding of the base terms offer, and then finalize your terms with a licensed advisor at your lending institution who will address your questions, priorities, and objectives and to the extent possible, make adjustments to your final loan documents. In many cases, the client may obtain modifications to the features of your loan prior to the issuance of your final loan documents by your lender.

At what point do I begin to incur an obligation?

There is no obligation to inquire. There is also no obligation to apply for a quote or to obtain a Term Sheet. Even after you have signed your Term Sheet, and set up your personal, secure account at your lender's institution, you have no obligation to proceed with your loan if you choose not to. Once the Term Sheet has been signed, however, you will be taken directly into the correct desk at the SIPC-member institution with a licensed account representative assigned to assist you and deliver your loan. Your advisor will also help you transfer your collateral securities into your new brokerage account if you wish, often the same day.

To repeat, until you sign your loan documents, you continue to have no obligations of any kind. You simply have a brokerage account at a major U.S. institution that you've freely chosen to open, with the typical full SIPC-member protections and 24/7 online access that American investors are accustomed to. The decision to proceed with your institutional securities financing will be entirely your own.

If the loan terms are acceptable to you, your loan documents will be assembled and delivered to you via the same advisor/institution (your lender), and you will have as much time as you need for review. Your obligation only begins once you sign the loan documents. The entire process is seamless and easy in most cases.

Since this question deals with obligations, remember that you can exit your loans at any time by simply paying off the remaining loan balance (for our floating rate loans there is no prepayment penalty; there may be, however, a prepayment penalty in some cases for fixed rate quotes). Payoff can be direct with cash, or by asking the lender to permit selling of enough shares to cover the balance. Other exit and rollover options are also available. Upon retirement of the debt, as with any asset-secured loan, the lien placed on your shares in your account is lifted and you will have full freedom thereafter to trade, sell, or transfer the shares any way you choose.

Do you have an Affiliate program?

Yes. However, it is not open to all. We invite only a very few financial professionals every quarter to join us, and the criteria is strict. Participants are carefully screened and must (1) have a background in securities or a relevant finance-related field with a completely clean background dating back no less then ten years; and (2) a verifiable, pre-existing sales channel or appropriate pre-existing network of potential clients for our securities finance services. We cannot accept for affiliation individuals seeking to develop new markets, sales channels, or networks for our securities loan services where none currently exist. We strongly encourage established independent investment advisors and other related professionals to apply.

We will often place those who do not have live transactions (qualified clients ready to apply for one of our loans) into Affiliate Status Pending status until they have an actual client to present to us, at which time their affiliation application will be reviewed and the Affiliate admitted, provided they meet criteria 1 and 2 above. Note that a sophisticated lead tracking system is available at no charge for admitted Affiliates.

Only those who are actual signed Affiliates of Securities Finance LLC specifically may market our loan products. We do allow our approved one-page Introduction to be distributed direct from us to your client, however, regardless of affiliation status, and we will be happy to call and discuss our programs with your clients. Inquire here if you'd like your client to receive this or to apply to become an Affiliate now.

Should you deliver an actual transaction, you will typically pass the background check phase and be signed so and become eligible to receive the full Affiliate fees. Securities Finance LLC has a very strict policy on the matter of circumvention and rightful, prompt payment of fees for our Affiliates, and you can rest assured that at no time will a candidate with a valid client referral not result in Affiliate status provided that the Affiliate candidate meets criteria 1 and 2 above.

Why can't you give me the name of the institution(s) administering the loans?

This rule is required by the lender as we are not employees or staff of the lending organization. You will, however, receive not only the names but all other information you need on your lending institution(s), and will be brought directly into the institution's department handling these transactions, following receipt of your signed, no-obligation Term Sheet. All of these steps are required for regulatory reasons and cannot be sidestepped. The policy also ensures that our lenders are not overwhelmed with ineligible or even fraudulent loan requests. What we can tell you is that to ensure maximum compliance, we do our utmost to ensure that these loan programs are administered only by the licensed personnel of a qualified, New York-based, top-tier, SIPC-member institution well-known and well- regarded domestically and internationally.

Can't I get these loans on my own, for example, by walking over to my broker or bank and asking for the same terms or structures?

As a rule, no. In practice, it would be very difficult if not impossible at best. These facilities are leveraged through a large infusion of private capital and built on existing relationships with our lending institutions(s) to custom create a level of flexibility and competition that are not standard in most private banking operations. The goal is an accessible loan facility superior to the norm, and a plug-and-play solution for independent advisors.

What if I want to swap out my current collateral with other eligible securities?

One of the many flexible features of these loan programs is that with lender's permission you can swap out the current set of collateral securities for a second set of approximately equal quality and value, allowing the potential to regain your shares mid-loan. Your lending institution will make its determination based on the value of the new securities as collateral, and will advise you promptly upon application/request.

Are any other types of collateral acceptable for your program?

Yes! As of March 1, 2010 this institutional loan facility can now be used with verified and certified works of art provided they have been officially certified and valuated by a major professional appraiser such as Christies, the ADAA, or equivalent. Contact us for more information.

How soon can I expect to see my loan funds?

We measure receipt of loan funds by gauging the time from which the loan documents are signed. If the collateral and your new account have been set up (same day is possible) and you have read and approved the terms of your loan offer, you will sign the loan documents. From that point until funding - typically the dropping of the loan funds in lump sum into your checking account - is typically from 1-3 business days.

Suppose I have an immediate problem or question. Who do I contact?

A staff member is always available to speak with you for any issues related to the phase of your loan where you are considering whether to proceed. You will receive both email and direct phone contact numbers once you have inquired. Begin here with our contact form. We are also available 24/7 to support you as needed post-loan.

Once you have signed your Term Sheet and have moved on to your institutional lender, you will speak with/work with your licensed account advisor at the brokerage that will write and manage your loan.

Do I get regular account statements?

Like any bank or brokerage, you get regular monthly or quarterly account statements direct from your institution. You can also print these out via online access. The traditional statements will show the status of your loan and the position of your collateral securities among other data in your reports.

You state that you have over experience in this business. How?

Our staff is acknowledged throughout this industry as the best, most innovative group in the industry for securities-based financing, a regard we've earned through listening to our clients and improving our facilities and structures every year. We have developed, processed, and/or closed many hundreds of millions of dollars worth of loan transactions over that long span. Our earlier backgrounds and training range from government to management to securities trading. We have worked with transfer-of-title (ToT) style securities loans, as well as these new institutional loans. Today we focus entirely on the types of loans that today's investors demand: Fully regulated, but feature-rich and always client-informed.

For further details and answers specific to these programs, please inquire here.

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