Securities lending settlement is the movement of securities and collateral that opens and closes a securities loan. At the start, the lender, or its agent, delivers the lent shares or bonds to the borrower, and the borrower delivers collateral in cash or other securities worth slightly more than the loan. At the end, the borrower returns equivalent securities and the collateral is released. Both sides instruct the movements through their custodians and the central securities depository, where the instructions must match before they settle.
Loans against cash can settle as delivery versus payment. Loans against securities collateral usually settle free of payment, with collateral often handled through tri-party collateral management; lenders commonly require collateral to arrive before releasing the loan. Returns are either agreed in advance or triggered by a securities lending recall. A late return can cause the lender's own sale to fail, so it is tracked under settlement fail management.