bidrec

More on Securities Lending and the Role of Incentives

In the years that I have followed Securities Lending (about six) I have noticed that those stocks that generate the most revenue to the securities lending agent invariably dropped in price and even ceased to exist. Fairfax Holding has been the exception, so far. PerformanceExplorer used to show the top ten revenue earners each month but does no longer.

Further, looking at the quarterly reports of the beneficial owners of the securities lent one will see a line-item for fees earned from securities lent, and interest earned on collateral held for securities lent. But there is not a line-item for the change in value of the securities lent. There would not be since only a sale of the securities would be a taxable event. But as the dollar value of the short-seller's (stock borrower's) position increases so the value of the stock lender's collateral held decreases as the collateral moves from stock lender through agent lender to stock borrower.

My point is, anybody who thinks that they can come out ahead by lending their securities has not looked at the whole picture.

Selling Short America and the Rest of the World

Manya says, "In aggregate, the amount of money in the hands of long-oriented investors outweighs the amount that is dedicated to the short side." This money is tracked, "Performance Explorer data for 11th August 2008 has been published, with $16.5 trillion balance of Lendable Assets and $4.37 trillion balance "on Loan" ."
www.dataexplorers.com/...

Almost all the money on the long side is available to the short side should they [the short side] want to sell it short. Why the long side (the lenders) should want to buy their own stock from the shorts when their existing holdings in those stocks are diminishing in value daily I cannot think.

The long side is party to this.