Myth busting:

Five common misconceptions
about securities lending

Myth #1

"It’s bad for share prices”

Many long-term investors participate in securities lending. Why? They understand that share prices are primarily determined by a company’s performance. While securities lending and associated short-selling activity may cause occasional fluctuations, evidence from The Federal Reserve¹ demonstrates that they have no lasting impact on long-term share prices.

Consider Tesla. Despite experiencing significant shorting activity over the years, at the end of the day, the stock price is on a consistent upward trajectory.

The International Organisation of Securities Commissions (IOSCO) emphasizes that securities lending contributes to effective liquidity and price discovery in financial markets, reduces volatility and costs for end investors, and is not detrimental to long-term value.² This is why many investors choose to participate and generate passive income.

¹Federal Reserve Bank of New York, Market declines: Is banning short selling the solution?, September 2011

²Technical Committee of the International Organisation of Securities Commissions (IOSCO) and Committee on Payment and Settlement Systems (CPSS), Securities Lending Transactions: Market Development and Implications, July 1999

Myth #2

"Revenue generated from securities lending won’t move the dial"

Securities lending can play a key role in a longterm investment strategy. It’s not a “get-rich-quick” solution – instead, it represents a steady and compounding source of revenue. Over time, the value of this pot can be significant.

Think of it like saving for a pension fund, where even relatively small amounts diligently saved over the years can accumulate into a sizable sum.

In some exceptional cases, income generated from lending specific stocks can be substantial, offering a third revenue engine for investors, alongside dividends and coupons.

Myth #3

"Private investors are against short selling and this is why they don’t want to participate in securities lending"

There is undoubtedly an emotional debate surrounding short selling, but it’s important to recognize that not all investors are against it. In fact, some investors are more than willing to engage in short-selling activities.

Not only is it a legitimate practice, but it is an essential market mechanism that facilitates price discovery and liquidity. The reality is that short sellers will always find a way to borrow securities and short them.

So, the question private investors
should ask themselves is:
Do they want to earn additional
income from their portfolios
or not?

Myth #4

"Loss of dividends and associated rights"

When investors lend out their securities, the borrower typically receives the associated rights.

However, investors don’t lose out on their dividends and coupon payments. Instead, they receive payments equivalent to the dividends they would have earned, known as “Dividends in Lieu”*. As for voting rights: yes, investors can’t vote in most programs.

However, if voting is really important to them, they have the ability to turn the program on and off when they need to and retain the authority to block or recall their securities at any time.

*Cash payments in lieu of dividends may not qualify for the same tax treatment as “qualified dividends”. You should speak to an independent tax expert to understand the tax implication to you as a result of participating in a securities lending program.

Myth #5

"It’s too complex"

Some investors argue that securities lending is overly complicated. However, securities lending is quite straightforward. With a simple opt-in or opt-out, investors have the choice to make their stocks, bonds, or ETFs available for lending or not.

It’s just like deciding to rent out an apartment. Except with securities lending, everything is taken care of. Investors don’t need to worry about tenant management or housekeeping, and benefit from added insurance – known as collateral – set at 105% of the value of the securities lent out.

In other words, the tenant is handing over a check for more than the apartment’s value when they rent. Put simply, securities lending is a hassle-free way to earn extra income from assets investors already own.

Myths busted

Don’t let misconceptions hold you back

With securities lending, as with other investment activities, your capital may be at risk.

Sharegain Securities Inc. is registered with the U.S. Securities Exchange Commission and is a member of FINRA (CRD# 318555) and SIPC. Sharegain Ltd is registered in England and Wales (no. 09600298) and is authorized and regulated by the Financial Conduct Authority (no. 730395). Registered address: 77 Leadenhall Street, London EC3A 3DE. Information regarding Sharegain Securities Inc. may be found at brokercheck.finra.org. Any information published on this website is intended exclusively for institutional investors and financial intermediaries. By using this website, you understand that all material presented here is provided for informational purposes only and agree to our Terms and Conditions and Privacy Policy. Nothing in this communication should be construed as investment advice or an offer, recommendation, or solicitation to engage in a securities lending programme. All investing involves risk and past performance is not a guarantee or a reliable indicator of future results. You should seek independent financial and/or tax advice before making any investment decisions. For more information, please contact info@sharegain.com © 2026 Sharegain Ltd