Can you share with us why you are against it?
Either here, or in DM if you are more comfortable with that.
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āBetting against companiesā is only one use case for borrowers. Securities lending is a normal feature of the capital markets, used by many participants for various reasons, e.g. by market makers. Check out: Securities lending
Fundamentally, the benefit to you is indirect: we get to make more revenue, so we can continue providing you with a reliable service and an improving product.
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Realistically, if you are investing in good companies with good growth prospects or decent profits Institutions are unlikely to try to drive them down by shorting, because thatās a sure fire way to lose money. Markets tend to rise over the long term so on average the short side is the wrong side of the trade. Itās only an issue if you are betting on companies that are already in trouble
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Thanks for your response, Viktor. I am well aware that securities lending is a ānormalā feature of the capital markets.
Perhaps I should ask a different question: āCan you describe a way that stock lending can increase the value of a security?ā
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Its purpose is not to increase the value of a security. As you can read on the webpage though, as an example, some brokers (known as market makers) support day-to-day trading on the London Stock Exchange and they will frequently borrow shares to be able to continuously quote two-way prices. You, as an investor, would at least indirectly benefit from that.
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@Viktor I tagged you and you didnāt answer my question. There is any problem with my question?
I hope this is not a case of discrimination.
Maybe theyāre looking for additional revenue as the current model is not paying off.
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Thanks again, Viktor, for your quick response. My point is exactly that lending my shares does not contribute to the increase in value that I hope to achieve. If my shares are lent to market makers, this increases market supply. While I appreciate that market makers play an important role at times when I want to buy or sell, when I want to hold, I actively want demand for my shares to outstrip supply.
Though this is a very nuanced debate, Iām sure you can appreciate that there is a strong argument that most Freetrade investors would not benefit from the risks of share lending (depressed pricing via short-selling, increased market supply, risk of failures to deliver) other than the possibility that increased revenue may help Freetrade deliver greater value in the future.
While Iām all for supporting the company, I would rather pay a higher level of fees (I already pay Ā£9.99 a month) to ensure that my provider isnāt contributing to any activity that could undermine the value of my investments.
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Can someone explain what risk if any there would be to a user from this? if freetrade is making a profit lending out my shares and something goes wrong I would expect them to face the blowback not me.
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Why bring discrimination into it? Poor card to pull.
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I agree with Alanās viewpoint. I would be willing to pay a little bit more to opt out of securities lending if necessary.
There must be a favourable middle ground solution for this where users can opt out of share lending surely.
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This is an industry norm. Many big fund managers do it, how do you think hedge funds are able to short in the first place, they lend from big fund managers. The hedge funds take all the risk, they offset this with othet collateral. Risk here is neglible for every day investor and will sustain freetrade finances.
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FT have not announced changes to fees, FX or otherwise.
I feel that if they were to announce changes today, that information would have been provided.
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What is the direct risk to you ?
We have no plans to decrease fees. It will help us deliver you a low-cost service.
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What if we dont consent to this?
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What would be the point in not consenting, other than the small risk? Okay, I get the argument that having more shares on the market may devalue a share slightly, but as long as those stocks are being shorted across the marketplace, an opt out wouldnāt protect you one jot.
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No guarantees in getting the stock back from the borrower if they go under. Collateral is collateral until it isnāt. What happens in this circumstance where Freetrade cannot locate the stock? Do I just get reimbursed the value in which I initially purchased it?
- I can opt out of stock lending with IBKR.
- HL doesnāt do stock lending.
I am sure stock lending will be perfectly ok for a lot of customers; I am not arguing to abandon the idea entirely. Itās a great revenue stream. It would just be great if Freetrade could do what T212 couldnāt and provide an option to opt out of this for non-ISA accounts, even if that means paying an additional fee for the privilege.
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The collateral doesnāt disappear if the borrower goes under. If the borrower does go under I imagine FT will sell the collateral and return you the cash or use the collateral to buy back the stock. FT say they will only lend to the largest banks. The risks of larger banks failing is lower since the GFC due to solvency rules.
I agree with you that there should be an ability to opt out. Iād like to see Plus customers receive income from any shares lent. I hope this āfeatureā doesnāt take years to implement.
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