Example of Using Stock as Loan Collateral

Sample Loan

Borrow funds by using securities as collateral
Here’s a straightforward example of a securities loan process, including how the “strike price” and value of the loan are determined.

Stock owned: 10,000 shares of ExxonMobil (U.S.: XOM)

You pledge 10,000 shares of ExxonMobil for loan.

EFH offers you a LTV ratio of 70 percent.

After accepting the terms, you transfer 10,000 shares to EFH’s brokerage account.

On the day the 10,000 shares clear and post to EFH’s account, the closing price for XOM (as reported by Bloomberg™) is $72.90.

The closing prices for XOM on the next two business days are $73.10 and $72.76.

The average of these three consecutive closing prices is $72.92 ($72.90 + $73.10 + $72.76 = $218.76 / 3 = $72.92). This is the “strike price” for this loan.

The total value of the pledged collateral (for purposes of determining the final loan amount prior to funding) is $729,200 (10,000 x $72.92).

The loan amount is 70 percent of $729,200 or $510,440.

During the pendency of the loan, EFH will sell all or the majority of the stock (upon full repayment of the loan, EFH will take all necessary steps to reacquire the collateral for return to the borrower).

Note: There may be tax consequences to you as a result of a transaction like this example. EFH cannot provide you with tax or other legal advice, and you are urged to contact your own legal counsel and accountants to evaluate your particular situation and determine any potential consequences to you.