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What is the risk of stock lending?

Many ETFs lend stock to a third party in exchange for a fee. Throughout the loan, the ETF remains the beneficial owner of the shares, is entitled to all dividends and has the right to recall the stock at any stage. The ETF is normally given collateral (often cash or a different stock) to hold whist the stock is on loan, but there is a chance that the ETF could lose money if the loan can't be recovered. In this case, the collateral will be used to refund the ETF. The risk that a borrower fails to return borrowed stock is sometimes called counterparty risk.

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