Oct. 31, 2022
October 31, 2022 Security lending information should be made entirely transparent and public. The security lending market is a massive market, which many people are largely unaware of. This is a problem for many reasons: financial institutions can lend shares out on behalf of their clients without their clients knowledge and without their gain, it enables rampant short selling of securities which can negatively impact the price of said security, and (but not limited to) it obfuscating positions that certain funds may hold. These are problems because they can allow banks and similar institutions to take their clients money and assets and bet against them with said clients' own assets. This is such an obscene conflict of interest for institutions which are supposedly meant to protect the assets of their clients. Allowing these (security lending) markets to remain mostly hidden from the public's eye furthers this conflict of interest because, without any transparency, how is one to know that their bank is engaging in these practices? It is against the interest of said banks' clients. Furthermore, security lending can facilitate malpractice in delivery of securities, which can allow institutions to prevent failure to delivers. This is a problem because it can create instances in which there are multiple obligations to a single share. This is problematic for obvious reasons such as creating obligations to more shares than are in existence for a particular company --which dilutes said company's stock and thus decreases the price artificially. This rehypothecation can create systemic risk should one party need to exercise their rights to a share. By making lending markets transparent, the public can see who is lending shares and who is borrowing them. By making this information public, it will be very clear which securities are subject to massive amounts of lending, which can be indicative of other issues involving that security.