Definition of Loan Consent Agreement

A Loan Consent Agreement is the portion of the margin agreement that allows the broker dealer to loan out the customer’s securities to another customer who wishes to borrow them to sell the security short.

Applying "Loan Consent Agreement" to Securities Exams:

When a customer opens a margin account the customer must sign the margin agreement which will spell out the terms and conditions under which credit will be extended. The customer will be asked to sign a loan consent agreement which will allow the broker dealer to lend out their securities to customers who want to sell the securities short. The loan consent is the only part of the margin agreement what the customer is not required to sign. However if the customer does not sign the loan consent agreement the broker dealer may reject the customer’s margin account. A customer who sign the loan consent agreement does is not impacted in any way if their stock is loaned to a short seller. The customer may sell the shares that he/ she is long without interruption

If you see a question on your exam relating to the loan consent agreement, it will most likely be testing the fact that it is the only part of the margin agreement that is not required to be signed.

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