View more on these topics

Stock lending a cause for concern

Concerns over recent shorting, especially from arbitrageurs who have borrowed stock, are valid so may I propose that stock lending is banned?

Other than for nominal adjustments for market-makers on overnight positions, analysing the situation suggests that those doing the stock lending in the first place are not doing themselves any favours anyway.

Why do arbitrageurs borrow stock? They do it to sell short in the anticipation of buying back later at a lower level – to make a profit.

During volatile times in general or for a specific company situation (of which many can be named presently, sadly), it increases volatility and uncertainty. Price falls can become inevitable because of simple supply and demand arguments.

It can be argued, however, that those who lend stock are the losers. They receive a small “premium” for the privilege but if the speculation works, then the value of their investment is falling, their management fees diminish and their comparative performance is poorer.

This helps to exaggerate the declines by giving the market the impression that genuine sellers are “dumping” a holding.

However, in effect, the market is unaware that the quantity of shares being traded suggests that in excess of 100 per cent of equity in that company is in existence at the point of sale – or at least that is the impression.

A ban would curtail the false market and individual price movements would be less volatile as traders would have to balance their books by acquiring stocks in the market to cover their shorts within a limited time span. This is likely to lead to a more orderly market.

Derivatives already exist but at least these indicate to the market the total quantity of stock being traded and in existence rather than a perception of an exaggerated unknown extra quantity.

“Shorting” would still happen but those doing so would be obliged to cover their positions in the very short term to meet market obligations.

Philip Milton

Barnstaple, Devon


Black & White is aiming for 300 advisers with takeovers

National broker the Black & White Mortgage Company says it is on track to boost its number of advisers to 300 from 200 by the end of the year through the acquisition of two smaller rivals.The firm, which was launched two years ago in Staffordshire, says it is set to top the £2bn business mark […]

Keen sense of self-preservation

It&#39s not often that MM staff are put into life-threatening scrapes (bar-tab squabbles notwithstanding) so we thought we would share this chilling encounter with you. During a night out at a restaurant with MM, Whitechurch Securities chairman Kean Seager spotted a shifty looking man sporting a particularly attractive swept-back mullet (permed at the back, Argentinian-style) […]

Norwich Union slashes with-profits payouts

Norwich Union is to slash payouts for with-profits by 5 per cent because of current market conditions. It will also cut reversionary bonuses by 0.5 per cent. The cuts will take effect from August 1. It says the stockmarket decreases of 25 per cent this year have seen the returns on its with-profits funds fall […]

Davies voices fears over Sandler&#39s safe products

FSA chairman Howard Davies has voiced his concerns over Ron Sandler&#39s proposals for a “stakeholder” suite of safe products, saying there is “some difficult work still to be done” before the idea could become a reality.Speaking at the FSA&#39s annual meeting in London last week, Davies said it would be difficult to relax the conduct […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm