Glossary of Lombard lending terms.
The vocabulary of Lombard lending, defined in plain language — so the terms behind a facility mean the same thing to everyone at the table.
Lombard lending has a precise vocabulary, and the precision matters: loan-to-value, recourse, and haircut each carry a specific meaning that shapes the terms of a facility. The definitions below are written to be read on their own — short, plain, and citable. For the instrument itself, start with what is a Lombard loan; for a fuller treatment of the advance, see how much you can borrow against shares.
Advance rate
The advance rate is the percentage of the collateral’s value that a lender will lend against it, set line by line or for the portfolio as a whole. The advance rate fixes the most that can be drawn at the outset, and the gap between it and the level at which a margin call arises is the borrower’s buffer.
Arrangement fee
An arrangement fee is a fee charged for structuring and putting a facility in place, usually a percentage of the facility amount, separate from the ongoing interest. It compensates the arranger for documentation, custody set-up, and execution.
Average daily volume (ADV)
Average daily volume (ADV) is the average quantity of a security traded over a defined period. ADV is a measure of liquidity; a position that is large relative to ADV takes longer to sell and is treated more cautiously as collateral.
Bankruptcy-remote
Bankruptcy-remote describes a custody or holding arrangement designed so that pledged assets are insulated from the insolvency of an intermediary, keeping the collateral identifiable and recoverable. It protects both the borrower’s ownership and the lender’s security.
Beneficial ownership
Beneficial ownership is the economic ownership of a security, as distinct from mere legal title: the right to its value, its dividends, and (subject to structuring) its votes. In a Lombard pledge the borrower retains beneficial ownership of the pledged shares.
Central securities depository (CSD)
A central securities depository (CSD) is the institution that holds a market’s securities in book-entry form and records their transfer between accounts. Examples are CCASS in Hong Kong, operated by Hong Kong Securities Clearing Company, a wholly owned subsidiary of HKEX; CDP, The Central Depository (Pte) Limited, a wholly owned subsidiary of Singapore Exchange; and KSEI, PT Kustodian Sentral Efek Indonesia. Pledged listed shares are held through a custodian that participates in the depository directly or through a sub-custodian.
Collateral
Collateral means the assets pledged to secure a loan, which the lender may realise if the borrower defaults. In Lombard lending the collateral is listed shares or a diversified securities portfolio.
Concentration
Concentration is the degree to which a portfolio’s value depends on a single position or a small number of them. Higher concentration raises risk and generally lowers the loan-to-value a lender will advance.
Corporate action
A corporate action is an event initiated by a company that affects its securities, such as a dividend, rights issue, stock split, merger, or spin-off. The treatment of corporate actions on pledged shares is set out in the facility documentation.
Cross-currency loan
A cross-currency loan is a loan advanced in a currency different from that of the pledged collateral. It introduces currency risk between the loan and the collateral, which is reflected in the loan-to-value and the terms.
Custody
Custody is the safekeeping of securities by a qualified custodian on behalf of their owner. In a Lombard loan the pledged assets are held in custody under arrangements that preserve the borrower’s ownership and secure the lender.
Disclosure threshold
A disclosure threshold is a shareholding level above which a holder must notify the market or a regulator of its interest, and often of changes to it. Pledging shares near or above a threshold can trigger notification obligations.
Dividend
A dividend is a distribution of profit paid to shareholders. Under a Lombard pledge the borrower generally continues to receive dividends on the pledged shares, subject to how the facility is structured.
Drawdown
Drawdown is the act of borrowing funds available under a facility. A facility may be drawn in a single amount or in stages, depending on when the borrower needs the cash. A revolving Lombard credit line can be drawn, repaid, and redrawn within its limit.
Eligible collateral
Eligible collateral means the securities a lender will accept as security, judged on listing, liquidity, free float, volatility, and market. Not every holding qualifies; eligibility is assessed position by position.
Exchange fund
An exchange fund is a pooled fund that accepts contributions of shares from several investors in exchange for interests in the fund’s combined portfolio. A holder of a concentrated position gains diversification without an outright sale, but gives up direct ownership of the contributed shares, and redemptions may be met by distributing securities rather than cash. The tax treatment of a contribution depends on the jurisdiction and the fund’s structure, so it should be checked with a tax adviser.
Free float
Free float is the proportion of a company’s shares available for public trading, excluding locked-in or strategic holdings. A larger free float means deeper liquidity and generally supports a higher loan-to-value.
Haircut
A haircut is the discount applied to the market value of collateral when setting the advance: the gap between what the collateral is worth and what is lent against it. A more volatile or less liquid asset attracts a larger haircut.
Loan-to-value (LTV)
Loan-to-value (LTV) is the ratio of the loan amount to the market value of the pledged collateral, expressed as a percentage. It is the central number in a Lombard loan, is calibrated to the specific holdings, and is quoted as an indicative range rather than a fixed figure.
Lock-up
A lock-up is a contractual restriction, common after an IPO, preventing a holder from selling (and sometimes from pledging) shares for a defined period. Shares under a lock-up are not freely tradable until it ends, so they do not meet the collateral criteria set out in who qualifies for a Lombard loan until then.
Lombard loan
A Lombard loan is a loan secured by a pledge of liquid assets, most commonly listed shares or a diversified securities portfolio. The borrower retains ownership and draws cash against a fraction of the assets’ value; the term is the private-banking name for securities-backed lending. Several UK private banks call it investment-backed lending. The origin of the name is explained in why it is called Lombard lending.
Maintenance ratio
A maintenance ratio is the level that the relationship between a loan and its collateral must stay within, expressed either as a maximum loan-to-value or as a minimum ratio of collateral value to loan. A breach lets the lender make a margin call, and the facility documents set how long the borrower has to restore the ratio. Because the ratio can be expressed either way, comparing two term sheets starts with checking which convention each uses.
Margin call
A margin call is a demand to restore the agreed loan-to-value after a fall in the value of the collateral, met by adding collateral or repaying part of the loan. It is the mechanism that keeps a secured loan within its agreed limits.
Origination fee
An origination fee is an upfront fee a lender charges for making a loan, payable at signing or deducted from the first drawdown. Some term sheets use origination, arrangement and upfront fee as names for the same charge, while others levy more than one, so the total payable at the outset matters more than the label.
Pledge
A pledge is the grant of security over assets to a lender without transferring ownership. The pledge lets the lender realise the assets on default; until then the borrower keeps ownership and, subject to structuring, the votes and dividends.
Prepaid variable forward
A prepaid variable forward is a contract in which a shareholder receives cash at the outset and agrees to deliver shares, or their cash value, at a future date, the number depending on the share price then. The shares may be pledged to secure delivery, the shareholder keeping votes and dividends in the meantime. Unlike a loan, a prepaid variable forward is settled in shares or cash, and its tax treatment depends on the jurisdiction and the terms.
Prepayment lock-out
A prepayment lock-out is a period during which a borrower may not repay a loan early, or may do so only by paying a fee or the interest the lender would otherwise have earned. A lock-out protects the lender’s expected return, but a long one leaves the borrower paying for cash it may no longer need and, unless repayments to meet a margin call are exempt, narrows the ways a call can be met.
Recourse (non-, limited-, full-)
Recourse is the extent of a lender’s claim beyond the collateral if the collateral does not cover the debt. Non-recourse limits the lender to the collateral; full-recourse extends to the borrower’s other assets; limited-recourse sits between the two.
Reference rate
A reference rate is a published benchmark interest rate, such as SOFR, SONIA, or EURIBOR, used as the base for pricing a loan. The borrower pays the reference rate plus a spread.
Repo (repurchase agreement)
A repo, or repurchase agreement, is a sale of securities with an agreement to buy equivalent securities back later at an agreed price. Title passes to the buyer for the term, so a repo is a title transfer, not a pledge: the seller’s right is to buy back equivalent securities, not the original ones. A facility called a repo should be read for who owns the shares during the term and what happens if the buy-back fails.
Restricted stock
Restricted stock means shares subject to legal or contractual limits on sale or transfer, for example insider holdings or shares under a lock-up. Shares that cannot yet be freely sold do not meet the collateral criteria set out in who qualifies for a Lombard loan until the restriction lifts.
Rights issue
A rights issue is an offer to existing shareholders to buy new shares, usually at a discount and in proportion to their holdings. As a corporate action on pledged shares, its treatment is set out in the facility documentation.
Securities-backed lending
Securities-backed lending is lending secured by a pledge of securities: the same instrument as a Lombard loan, under a more descriptive name. It is also called a share-backed loan.
Securities-based line of credit (SBLOC)
A securities-based line of credit (SBLOC) is a revolving credit line secured by securities held in an investment account, offered in the United States by brokerage firms, many of them through a bank affiliate. FINRA describes SBLOCs as non-purpose loans, whose proceeds cannot be used to buy or trade securities, and as demand loans that the lender may call at any time. “Portfolio line of credit” and Schwab’s “Pledged Asset Line” are names used for similar facilities.
Settlement instructions (SSI)
Settlement instructions (SSI) are the details a custodian gives for delivering shares into a custody account: the receiving custodian or depository participant, the account to be credited, and the references the market’s settlement system requires. Settlement instructions describe a delivery of securities, not a payment, so they are not cash payment details. A request to send money that is presented as settlement instructions should be checked directly with the custodian before anything is sent.
Spread
The spread is the margin added to the reference rate to arrive at the interest rate on a loan. The spread reflects the loan-to-value, the recourse, the tenor, and the liquidity and volatility of the collateral.
Sub-custodian
A sub-custodian is a local institution that a custodian appoints to hold securities in a market where it is not itself a participant in the central securities depository. Where a sub-custodian is used, pledged shares sit in a chain of accounts from the depository through the sub-custodian to the main custodian, and the borrower’s protection depends on how each link segregates client assets and which law governs it.
Takeover code
A takeover code sets out the rules governing the acquisition of control of a listed company, covering matters such as mandatory bids, concert parties, and disclosure. Facilities for controlling shareholders are structured to avoid triggering the applicable code.
Tenor
Tenor is the term of a loan, from drawdown to final repayment. Lombard facilities are typically arranged for twelve to thirty-six months and are often renewable by agreement.
Top-up and cure
Top-up and cure is the right to remedy a breach of the loan-to-value by adding collateral or repaying part of the loan (top-up), within a defined cure period, before the lender may enforce. It gives the borrower a route to answer a margin call without a forced sale.
Valuation event
A valuation event is a circumstance defined in a facility’s documents that lets the lender revalue the collateral, or change how it is valued, outside the regular schedule, such as a trading suspension, a sharp fall in the share price or a corporate action affecting the shares. The wider the list of valuation events, the more occasions the lender has to reprice the collateral and call for a top-up.
Volume-weighted average price (VWAP)
Volume-weighted average price (VWAP) is the average price at which a share traded over a period, with each trade weighted by the number of shares it involved. A facility may use a VWAP rather than a single closing price to value the collateral or to set the price at which an advance is calculated, which reduces the weight of any single trade or closing price.
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