Short selling is not just about directional short selling. It plays an integral part of a broader investment strategy. It strengthens markets, adding liquidity and price discovery to capital markets.
Now, what happens if you lent your shares, and they have significantly fallen in price? Ask yourself; did they fall in price because you lent them to short-sellers or because those short sellers spotted a problem with the company that sadly transpired? Short-sellers may be right or wrong, and it is up to you to decide whether you think the shares are properly priced. However, wouldn’t you want to know there is a short selling activity in your shares at the time it’s actually happening, while earning rent for it, rather than reading about it retrospectively and earning nothing for it? The biggest financial institutions operate like that and have been lending securities for decades, making billions of dollars from this common practice.
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With securities lending, as with other investment activities, your capital may be at risk.
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