Shorting our investments.....

  1. 91 Posts.
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    An extract from my TON post which may interest those with Superannuation.......

    The whole concept of borrowing to short a stock in itself is somehow twisted to me.

    As I see the financial world in Australia......
    Shareholders are the only suppliers of stock available for lending.
    Those with a long-term positive view wouldn't lend stock to have underlying value destroyed.
    And those who have a negative sentiment would simply sell.

    I understand the custodians (JP Morgan, RBC, BNP Paribas) do (and are allowed to) lend stock for a few extra bucks.
    These custodians whose names often appear in the Top 20 shareholders are third-party providers (i.e. outsourced back-office administration) for large investment and superannuation funds.
    Most controlled by ANZ / CBA / WBC / NAB / AMP / Macquarie.

    And we, as the general investing public, are largely ultimate owners through own our investment or our superannuation.
    I don't understand the investment logic of these funds lending out the stock via the custodians to the shorters.
    In theory, a declining share price from shorting would force the funds to report a lower proportional return.
    I expect that the lent shares must be returned at certain key reporting periods but often with a much lower value if the shorters are successful.
    Are these funds really behaving in the unitholders' best interests!!

    Is it time for unitholders to demand their funds not to lend out stock?
 
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