shakespeare

To lend… or not to lend?

You have a portfolio, you’re interested in lending your securities, but you’re still not sure about taking the leap. We get it – this is unfamiliar territory after all. So, here are six reasons why you’d think of NOT lending, as we discuss one after the other.

You don’t want to lend to someone you don’t know

When Airbnb first launched, most people could not see the appeal – who would want to lend their home to a complete stranger? But Airbnb’s systems, honest reviews and incredibly positive word-of-mouth quickly built the company’s reputation. Now you, or your friends, probably use Airbnb all the time. 

So, who will you be lending your securities to? Usually, the biggest borrowers are banks and hedge funds. While hedge funds may not be the kind of institutions you’re used to dealing with, we have made your life easier. With Sharegain, you will lend only to well-known banks, like the ones that you trust to hold your securities in the first place.

You don’t want to help short-sellers

Securities lending often gets a bad rep because it’s associated with short selling. Why would you want to help traders bet against the companies you own? That seems kind of counter-intuitive, doesn’t it?

Investing in shares comes with risks; and even shares of the best companies will go through ups and downs at different times. If you believe in the company over the long term and are riding these waves of volatility, wouldn’t you want to benefit from an extra income in the meantime and get compensated for the risk you are taking by owning these shares? The biggest financial institutions operate like that – why shouldn’t you?

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 have spotted a problem with the company that has sadly transpired? Short-sellers may be right or wrong, and it’s up to you to decide whether you think the shares are properly priced, but wouldn’t you want to know there is a short selling activity in your shares at the time it is actually happening rather than reading about it retrospectively?

You’re worried the borrower won’t return your securities

No need to fret about this because every borrower has to put up collateral worth more than the value of your shares. The collateral is held safely by a third-party custodian while your shares are on loan and is adjusted daily to reflect any share-price movements on your loaned shares.

Imagine if, say, car rental companies asked for this kind of collateral. The person renting the car would have to come up with a big enough deposit, in excess of the current value of the car before even getting the keys.

Obviously, if the borrower fails to return your securities, the collateral is all yours.

You don’t want to miss dividend payments while your securities are on loan

When you lend your securities, they are transferred to the borrower. But, any dividend payment due will still be paid to you, so you don’t miss out on the income you’d expect. The only right that changes when you lend your securities is your right as a shareholder to vote on a company’s decision. If you want to take part in a vote, just ask for your shares to be returned in advance. You can do this at any time without any penalty.

You might want to sell your stocks while they’re out on loan

When you rent out your home, you can’t just get rid of your tenants whenever you decide you want your property back. In some cases there’s a notice period of weeks or even months. But when you rent out your securities – different story.  As we said earlier, you have the right to recall your securities at any time. How convenient is that?

There must be other good reasons NOT to do this

We don’t think so, but don’t just take our word for it – we encourage you to ask around and get another professional opinion. Big financial institutions decided decades ago that lending securities is a great practice and we think it’s time for individual investors to reap the benefits too. That’s why we’ve reinvented securities lending for private investors and brought it to the digital age. We want it to work for you too.

Stay tuned or learn more about Sharegain and our service here