margin loan

margin loan
England, Wales
A loan (which is often combined with a borrower's own money) to buy shares or units in managed funds. Typically, the loan will be secured by cash or shares approved by the lender. The lender agrees to lend up to a certain limit based on the value of the security (the Security Value). If the Security Value falls below an agreed amount, the lender may make a margin call requiring the borrower to make good the shortfall. The borrower may do this by:
• Repaying part of the loan from existing cash resources.
• Providing additional security.
• Selling some of the shares which are being used as security and using the proceeds to repay part of the loan.
If the borrower does not meet the margin call within the specified time, the lender may sell sufficient shares and apply the sale proceeds in repayment of the loan so that it is reduced to the agreed amount.
See also stock lending

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.

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