Stock lending misconceptions clarified
Three industry associations have made a point of highlighting the distinction between short selling, which is currently banned in the Australian market, and securities lending, which has been allowed to continue under the revised rules.
The Australian Custodial Services Association, the Pan Asian Securities Lending Association and the Australian Securities Lending Association (ASLA) have all emphasised the importance of people understanding that a stock lent does not equal a stock shorted.
Securities lending is used by market participants, such as super funds, central banks and insurance companies, to provide the liquidity needed to facilitate transactions such as risk arbitrage, hedging strategies, swaps and basic collateralisation.
In welcoming the Australian Securities and Investments Commission’s decision to allow the continued participation in securities lending programs by institutional investors, the associations explained that securities lending was an integral part of the market’s daily functioning, with a variety of players relying on it to trade, hedge positions or manage funds as part of a risk controlled investment strategy.
However, they also announced their support for the Reserve Bank of Australia’s (RBA) focus on improving the transparency of longstanding securities lending practices in a bid to eradicate market manipulation.
“Transparency is the key issue for the securities lending sector at present,” ASLA chair Natalie Floate said.
“We continue to work actively with regulators and participants to assist with increased transparency and stabilisation of markets for the benefit of all investors.” The RBA is currently considering an amendment that would effectively require the Australian Securities Exchange to collect and publish data on securities lending activity.
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