Securities lending is now a standard feature on modern brokerage platforms. Many global brokers already offer it, more are launching it every quarter, and clients increasingly expect it as part of a competitive platform experience.
But even with widespread adoption, familiar questions still come up – especially around short selling.
We’ve broken down the most common concerns so your clients can make confident, informed decisions and start earning more from their portfolios.
“I don’t want to help short sellers.”
Here’s the reality: retail investors aren’t “enabling” short sales. They’re earning income from normal market activity.
Short sellers will usually find supply – from pension funds, ETFs, or other investors. Whether your client’s shares are included rarely affects whether the short sale happens, especially in liquid markets.
What changes? Whether they earn from that demand or someone else does.
“But won’t more short selling hurt the stock?”
There is undoubtedly an emotional debate around short selling, but in reality it serves an important purpose in healthy financial markets. Studies have shown that by enabling a broader range of market views, short selling helps prices reflect new information more accurately, while also improving liquidity and overall market efficiency.
“Is short selling the only reason my shares are borrowed?”
No, short selling is not the only reason shares are borrowed and represents only a portion of securities lending activity. Borrowed shares are also used to support other key market functions including hedging, market making and liquidity provision, and the smooth settlement of trades.
“Will lending my shares drive the price down?”
If you believe in a stock long-term, the last thing you want to do is help someone bet against it, right?
The reality is: many long-term investors participate in securities lending. Why? Because they understand that share prices are primarily determined by broader factors including company performance, investor sentiment, and macroeconomic conditions – not just short selling.
While short selling activity may cause short-term downward pressure in certain situations (e.g. thinly traded or volatile stocks), research has consistently demonstrated that securities lending has no lasting impact on long-term share prices.
In fact, there are many examples where investors have earned lending income while the stock price continued to rise.
“Can you show an example?”
Yes, a notable example is CoreWeave.
Since its IPO in March 2025, CoreWeave’s share price has risen significantly. The sharpest move came in the first 13 weeks, during which the stock surged 308%.
During that same period, borrowers paid lenders an average lending fee of 73%. This is a great example of how investors can earn both capital appreciation and lending income from the same holding.
You can read more about CoreWeave here.
*Note that this is just one example and may not reflect typical outcomes – every investor’s experience will vary. IPOs are often associated with higher volatility and may not suit all risk profiles, so it is important to consider what is appropriate for your client.
“Do I still own the stock if I lend it?”
Yes. Your client retains economic ownership of the asset, including 100% exposure to its price movements. Gains or losses occur exactly as they would if the shares were not lent. Your client continues to receive dividend payments – known as manufactured dividends or dividends in lieu – and can sell at any time. Keep in mind that tax treatment for dividends in lieu may vary depending on your client’s jurisdiction of domicile or account type.
Investors temporarily lose voting rights while the shares are on loan. If voting is a priority, they can choose to recall their shares before key votes to make sure they can still take part.
“Will my shares affect the short interest ratio (SIR)?”
The short interest ratio (SIR) is a widely used market metric that shows how long it would take short sellers to cover all open short positions based on a stock’s average daily trading volume. It is calculated by dividing the total number of shares sold short by the average daily trading volume for that stock.
Because SIR reflects all short positions and trading volume across the entire market for that stock, it’s driven by millions or even billions of shares in play. A single retail investor’s holdings are statistically negligible in the calculation and are unlikely to move the short interest ratio or broader market sentiment in any measurable way.
“What if there is a short squeeze?”
A short squeeze can create a unique opportunity for investors to earn twice: if the price surges, they remain fully exposed to the upside from owning the stock, while heightened demand for shares can increase lending income.
Lending doesn’t restrict their ability to trade – they remain in control and can sell at any time.
Note that short squeezes can lead to heightened market volatility. Investors should also be aware of counterparty risk: in rare cases, a borrower may fail to return shares. Securities lending programs have safeguards in place to mitigate this risk, but it is something to consider.
“Is securities lending only worth it for institutions with millions of shares?”
While larger portfolios can often generate more in absolute terms, individual investors are still well-positioned to take advantage of the opportunities presented by securities lending.
Returns are driven by supply and demand for specific shares – and some of the most in-demand stocks for lending are those often found in retail investor portfolios.
Sometimes the income is modest, but it can add up over time. And when demand for a specific stock does spike, even the most unexpected holdings can become valuable. Your clients don’t need millions of shares to make it worthwhile. They just need the right ones at the right time.
Here’s the bottom line
Short selling is a normal part of the markets – it happens with or without any one investor’s shares. By lending, your clients are simply participating in an opportunity to capture the potential upside from that demand.
Sources:
Price efficiency and short selling, The Review of Financial Studies
Market declines: Is banning short selling the solution?, Federal Reserve Bank of New York
Understanding the opportunity in IPO volatility, Sharegain
Short Interest Ratio explained, Investopedia
Retail securities lending: New players in the game, Securities Finance Times
Disclaimer
For institutional investor use only. This material is provided for informational purposes only and does not constitute investment advice, an offer, or a solicitation to engage in securities lending or any investment strategy. Like all investment activities, securities lending involves risk – including counterparty, collateral, and market risk. When an investor’s shares are on loan, voting rights are temporarily transferred to the borrower, and any payments received in lieu of dividends may be treated differently for tax purposes. The borrower may use the securities for short selling or related trading strategies. Any income from securities lending is variable, not guaranteed, and dependent on market demand and other factors. Past performance or lending demand does not necessarily predict future results. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
