Marcella Araújo Brandão Noronha
Lawyer at Marcos Martins Advogados Associados
Also better known as share rentals, share lending is a legal transaction that involves high values and is of great value and importance to the capital markets. It is rare to find legal materials discussing this topic, which does not mean that it is a subject of low relevance, but on the contrary, this fact may even demonstrate how much security there is in the development of such operations in the Brazilian market, which has been growing considerably since its establishment in Brazil.
Stock lending, regulated by National Monetary Council Resolution No. 3. 539, of February 28, 2008, as well as Securities and Exchange Commission (“CVM”) Instruction No. 441, of November 10, 2006, is basically the transfer of shares from their holder to an interested third party, carried out through securities distributors or brokers (clearing and settlement entities authorized by the CVM to provide securities custody services), which lend a certain number of shares to borrowing investors, with the prior authorization of the holders, for a fixed term, and for a freely agreed fee.
As a rule, this type of operation is invested in for the long term, and the investor who owns the shares has no interest in disposing of them in a short period of time, remaining with the shares for the duration of the contract, generally guaranteeing them an additional return. Borrowers, on the other hand, are investors who keep the shares temporarily, with the aim, for example, of settling a previous transaction or making certain strategies viable.
In addition, borrowers need to guarantee the loan with assets, in escrow, which are accepted by the custodian in an amount sufficient to ensure the settlement of the transactions. The loan in question involves the transfer of ownership of the shares to the borrower for a fixed period of time and the holder of the shares who will lend them receives a remuneration agreed between the parties, less any applicable taxes. As for the costs incurred in carrying out the operation, which can be borne by both the holder of the shares and the borrower, these involve a combined fee, the emoluments paid to the stock exchange and the brokerage.
As a result of the operation, rights such as voting rights will be exercised by the borrower, if they have not sold the share. As far as dividends and interest on equity are concerned, these will be repaid to the holder of the shares who made the loan, who at the same time and for the same amount, debits the borrower. As for bonuses, for example, the investor who took out the loan receives the loaned shares in the right amounts.
In this sense, it is clear that stock lending can bring great advantages to both parties, assuming they understand the operation in detail, such as what obligations will be contracted and the rights that will be transferred to the other party by carrying out the transaction, as well as using the operation to their advantage. In addition, the stock lending operation brings another advantage, which is the movement and growth of the Brazilian capital market.
In this way, it is understood that stock lending operations, despite the risk inherent in any activity related to the capital market, can be considered a good way of raising funds and strengthening the relationship between medium and long-term investors and the market.
Bibliography
PORTAL do Investidor. Renting shares (BTC). Available at: . Accessed on: Dec. 11, 2013
Revista de direito mercantil: industrial, econômico e financeiro. São Paulo: Malheiros, v.51, n. 161/162, jan/ago. 2012. 254 p.
