Encumbered

The term ‘encumbered’ refers to securities that are owned by one entity, but are also subject to a legal claim by another. When a company borrows from another, legal claims on the securities owned by the borrower can be taken as collateral by the lender in the event that the borrower defaults on its obligation. Encumbered assets are subject to restrictions on their use or sale, and in some cases, they cannot be sold until the outstanding debts belonging to the owner of the securities are paid back to the lender who holds the claim against them.

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