Why would allowing someone to hold borrowed shares
Post# of 155554
(Total Views: 504)
Posted On: 02/28/2021 11:44:03 PM
Why would allowing someone to hold borrowed shares be goofy or illegal?
Particularly when shorting is allowed in the first place, which is what is goofy and wild in the first place.
I can loan you money for an indefinite period.
I can loan you my car for an indefinite period.
Why can't I loan you my shares for an indefinite period?
In this case, I would be making money (interest) from the person holding my shares, who pays me interest for the privilege of holding my shares, just as my loaning you money, you would pay me interest, and my car lease, I pay the lessor the privilege of leasing me a car.
The person holding the shares can do whatever he wants with them in the interim, but has the obligations of paying interest.
But, the person borrowing the shares does not really become a short until he sells those shares short to a 3rd party.
And, the person borrowing the shares for an extensive period incurs interest, without the possibility of making any money until he shorts the shares. That's because he still has the shares, which he borrowed but does not own, and has no need to buy back because he still holds the borrowed shares. If he decides not to short sell the shares, he merely returns them to the lender of the shares, but out the interest he incurred. So a person borrowing the shares cannot hold them too long without either taking a short position or returning the shares. So, basically if they are in fact borrowing and holding, they are likely indicating that they believe the share price is about to go up significantly.
(Caveat: I am not an expert here, but this is all IMHO).
Particularly when shorting is allowed in the first place, which is what is goofy and wild in the first place.
I can loan you money for an indefinite period.
I can loan you my car for an indefinite period.
Why can't I loan you my shares for an indefinite period?
In this case, I would be making money (interest) from the person holding my shares, who pays me interest for the privilege of holding my shares, just as my loaning you money, you would pay me interest, and my car lease, I pay the lessor the privilege of leasing me a car.
The person holding the shares can do whatever he wants with them in the interim, but has the obligations of paying interest.
But, the person borrowing the shares does not really become a short until he sells those shares short to a 3rd party.
And, the person borrowing the shares for an extensive period incurs interest, without the possibility of making any money until he shorts the shares. That's because he still has the shares, which he borrowed but does not own, and has no need to buy back because he still holds the borrowed shares. If he decides not to short sell the shares, he merely returns them to the lender of the shares, but out the interest he incurred. So a person borrowing the shares cannot hold them too long without either taking a short position or returning the shares. So, basically if they are in fact borrowing and holding, they are likely indicating that they believe the share price is about to go up significantly.
(Caveat: I am not an expert here, but this is all IMHO).
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