In regards to your concern about "Share Lending" that you previously never heard about, here is some insightful information you might find useful. I will also tell you that has been used by many companies and is not as unusual of an event as you tend to think, as you will see below, though I am sure it is new to plenty of investors here, so I understand the confusion it can cause. Which is why I thought I would share a little bit about the program here, but you must understand it can get very complicated and there are many reasons for entering into an agreement of this sort. Again, nobody can make any assumptions that it will be utilized to short the stock, as that would be a very short sighted approach and could very well be completely wrong! I hope you and others find this useful and that it may help clear up a few things in regards to your concerns. Cheers!
Securities lending – the temporary transfer of securities on a collateralised basis – is a major and growing activity providing significant benefits for issuers, investors and traders alike. These are likely to include improved market liquidity, more efficient settlement, tighter dealer prices and perhaps a reduction in the cost of capital. The scale of securities lending globally is difficult to estimate, as it is an “over the counter” rather than an exchange-traded market. However, it is safe to say that the balance of securities on loan globally exceeds 3 trillion.
Most securities loans are collateralised, either with other securities or with cash deposits. Where lenders take securities as collateral, they are paid a fee by the borrower. By contrast, where they are given cash as collateral, they pay the borrower interest but at a rate (the rebate rate) that is lower than market rates, so that they can reinvest the cash and make a return. Pricing is negotiated between the parties and would typically take into account factors such as supply and demand for the particular securities, collateral flexibility, the size of any manufactured dividend and the likelihood of the lender recalling the securities early.
Not all securities lending is motivated by short selling. Financing drives many transactions – the lender is seeking to borrow cash against the lent securities, whether using repo, buy/sell backs or cash-collateralised securities lending. Another large class of transactions not involving a short comprises those motivated by lending in order to transfer ownership temporarily, an arrangement which can work to the advantage of both lender and borrower.
For example: Where a lender would be subject to withholding tax on dividends or interest but some potential borrowers are not. The borrower receives the dividend free of tax, and shares some of the benefit with the lender in the form of a larger fee or larger manufactured dividend.
What is stock lending? Stock lending is the temporary transfer of securities, by a lender to a borrower, with agreement by the borrower to return equivalent securities to the lender at pre-agreed time. There are two main motivations for stock lending; securities-driven, and cash-driven. In securities-driven transactions, borrowing firms seek specific securities (equities or bonds), perhaps to facilitate their trading operations. In the cash-driven trades, the lender is able to increase the returns on an underlying portfolio by receiving a fee for making its investments available to the borrower. Such transactions may boost overall income returns, enhancing, for example, returns on a pension fund.
What sorts of securities can be used in stock lending? Securities lending covers all sorts of securities including equities, government bonds and corporate debt obligations.
What are the legal underpinnings for stock lending? Parties to a stock lending transaction generally operate under a legal agreement such as the Global Master Securities Lending Agreement that sets out the obligations of the borrower and lender. In securities lending the lender effectively retains all the benefits of ownership, other than the voting rights. The borrower can use the securities as required - perhaps by lending them on to another party - but is liable to the lender for all the benefits such as dividends, interest, or stock splits.
What are the benefits of stock lending? There are many positive aspects of stock lending. It can:
increase the liquidity of the securities market by allowing securities to be borrowed temporarily; thus reducing the potential for failed settlements and the penalties this may incur. provide extra security to lenders through the collateralisation of a loan support many trading and investment strategies that otherwise would be extremely difficult to execute allow investors to earn income by lending their securities on to third parties facilitate the hedging and arbitraging of price differentials
Can stock lending be harmful? Stock lending, is not a harmful practice. Many feel that securities lending could aid market manipulation through short selling, which can potentially influence market prices. Short selling as such is not wrong (although market manipulation certainly is) and stock lending can assist those that have sold stock short, thus adding liquidity to the market. Another alleged potential abuse is that of tax evasion. Stock lending does not assist tax evasion.
.PNG)
