Pledge securities is the practise of utilizing securities (such as stocks, bonds, or other financial assets) as security for a loan or debt. When a borrower pledges securities, they grant the lender the right to confiscate and sell the securities in the event that the borrower defaults on the loan or fails to uphold the conditions of the debt agreement.
In the financial sector, pledging securities is a standard practise, especially in the context of margin loans, where investors borrow money from a broker to buy securities. In this instance, the securities themselves act as security for the loan.
The act of pledging securities often entails the borrower giving the lender ownership of the securities, either directly or through a custodian. The lender thereafter holds the securities.
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