Securities lending is legally and clearly regulated in most major global securities markets. Most markets require that the bond be paid only for specifically authorized purposes, which generally implies that securities bonds are classified according to their availability for bond borrowing. High-liquidity securities are considered “light”; these products are easy to find on the market, someone should decide to borrow them for the purpose of selling them briefly. Securities that are illiquid in the market are considered “hard.” Due to various rules, short selling in the United States and some other countries must be preceded by the location of security and the amount that one wants to sell briefly to avoid bare short circuits. However, the lender can establish a list of securities that do not require such a location. This list is designated as an easy-to-borrow list (short for ETB) and is also called flat-rate insurance. This list is compiled by brokers on the basis of “reasonable assurance”[8] that the securities on the list are readily available at the client`s request. However, if a guarantee on the list cannot be provided as promised (a “delivery failure” would occur), acceptance of reasonable grounds no longer applies. In order to improve the basis of these assumptions, the ETB list must have a maximum duration of 24 hours. Unlike a buy/sell trade, a securities lending transaction has a life cycle that begins with the settlement of trading and continues until they return. Several life cycle events will occur during this life cycle: in 2011, FINRA issued a warning to investors for equity-based credit programs.

[9] In the warning, FINRA recommended that investors ask several questions, including: 1) What will happen to my action as soon as I guarantee it? (FINRA states that securities should never be sold to finance loans); 2) Did the lender control the finances? (FINRA found that all major publicly traded brokers/banks that should have had verified financial data for investors) and 3) Is the institution that manages the loan and accounts fully authorized and reputable? Short selling involves the sale and repurchase of borrowed securities.