Can individuals who own a stock, request that the brokerage
holding the underlying equity NOT lend out shares to others who may
want to short it? If so, why wouldn't every owner of a stock
do so?
Here's why I ask: Perhaps I'm missing something about shorting
stocks, but isn't it absolutely in the interest of every
shareholder to make the float as scarce as possible so the price
goes HIGHER? Allowing anyone to borrow shares of a stock I
own clearly is counter to my financial interest, since I'd be
enabling someone to drive down the price of that stock lower.
If that assumption is correct, and taking for a given that every
share of a stock is either owned by an institution or an individual
(both of whom want to see that equity APPRECIATE in value), who in
their right mind would lend out their shares for shorting??
The interest received while shares are loaned out couldn't possibly
offset the potential of a stock dropping 40-50% if the shorts got
the upper hand, as they sometimes do.
Please educate me to what I'm missing...because it seems it's in
no one's interest to lend out shares, other than the shorts
themselves.
And if owners of shares cannot control the shares they own (ie.,
opt not make them available for shorting), why is that legal?
Aren't those shares mine, not the broker's?
Posted by xxnileshxx on 16th of Dec 2014 at 08:36 am
You can ask your broker to not lend your stock. However
Majority of the stock is held by institution and they have figured
out long time ago that there is more money in trading then holding
a stock. If Institutions locked up there float there would be
very little left resulting in large swings in stock that is not
good for anyone. The key is to take profits in small
increments. As they they you will be better off with lot more
singles then a grand slam.
If an institution lends out stock it owns
and charges interest at say 7-10% until the stock is
returned, how does that benefit the owner of those shares if the
stock is then driven down 20-30%; they would be a net loser.
Unless, of course, I'm underestimating the fee paid to "borrow the
stock"...in which case, if larger, the transaction would
be prohibitive to the individual wanting to go short.
As I said, this just doesn't make sense to me. Those
"lending out" stock are betting against their own interests as best
I can see.
In all the years I've asked this question, NO ONE has
provided a plausible explanation. With so many owning stock,
it's incredible there isn't more of a ground swell of demand that
owners be allowed to remove their shares from the "lending"
market.
Wouldn't markets be more efficient if one could only buy
(without margin) and sell stock they actually have in their
possession?
Crazy, but serious question about shorting stocks.......
Posted by RichieD on 16th of Dec 2014 at 06:30 am
Can individuals who own a stock, request that the brokerage holding the underlying equity NOT lend out shares to others who may want to short it? If so, why wouldn't every owner of a stock do so?
Here's why I ask: Perhaps I'm missing something about shorting stocks, but isn't it absolutely in the interest of every shareholder to make the float as scarce as possible so the price goes HIGHER? Allowing anyone to borrow shares of a stock I own clearly is counter to my financial interest, since I'd be enabling someone to drive down the price of that stock lower.
If that assumption is correct, and taking for a given that every share of a stock is either owned by an institution or an individual (both of whom want to see that equity APPRECIATE in value), who in their right mind would lend out their shares for shorting?? The interest received while shares are loaned out couldn't possibly offset the potential of a stock dropping 40-50% if the shorts got the upper hand, as they sometimes do.
Please educate me to what I'm missing...because it seems it's in no one's interest to lend out shares, other than the shorts themselves.
And if owners of shares cannot control the shares they own (ie., opt not make them available for shorting), why is that legal? Aren't those shares mine, not the broker's?
You can ask your broker
Posted by xxnileshxx on 16th of Dec 2014 at 08:36 am
You can ask your broker to not lend your stock. However Majority of the stock is held by institution and they have figured out long time ago that there is more money in trading then holding a stock. If Institutions locked up there float there would be very little left resulting in large swings in stock that is not good for anyone. The key is to take profits in small increments. As they they you will be better off with lot more singles then a grand slam.
Thanks for taking the time to respond xxnilesshxx but.....
Posted by RichieD on 16th of Dec 2014 at 09:41 am
say your answer makes no sense to me.
If an institution lends out stock it owns and charges interest at say 7-10% until the stock is returned, how does that benefit the owner of those shares if the stock is then driven down 20-30%; they would be a net loser. Unless, of course, I'm underestimating the fee paid to "borrow the stock"...in which case, if larger, the transaction would be prohibitive to the individual wanting to go short.
As I said, this just doesn't make sense to me. Those "lending out" stock are betting against their own interests as best I can see.
In all the years I've asked this question, NO ONE has provided a plausible explanation. With so many owning stock, it's incredible there isn't more of a ground swell of demand that owners be allowed to remove their shares from the "lending" market.
Wouldn't markets be more efficient if one could only buy (without margin) and sell stock they actually have in their possession?
For most brokers, Unless you
Posted by jdaswani on 16th of Dec 2014 at 08:47 am
For most brokers, Unless you account exceeds $500k to $1M. They will not honor your requests on stock lending.