30 March 2022


CHRIS HUGHES, Shareholder Analyst

The borrowing and lending of shares dates back to the earliest days of stock trading. Put simply, it involves the owner of shares ‘lending’ them to another investor or institution who ‘borrows’ them for a given length of time. Borrowing and lending deals are often transacted by market makers or dealers, although institutional investors can carry out stock lending. The borrower must offer collateral, usually equal to at least the value of the shares being borrowed and pay a ‘borrow fee’ along with interest. In exchange, they receive the shares, including a transfer of ownership of the shares for an agreed length of time. Stock borrowers and lenders usually use “collateral accounts” for these transactions.


Lending shares provide benefits to the Lender in a number of ways. When a broker or a large institutional investor, such as a super fund or fund manager, lends shares they usually receive a ‘borrow’ fee’ and interest payments which generates passive income that enhances their portfolio returns.

Some investors operate under an investment mandate or set of rules that they follow when investing. An investment mandate can require the investor to be a long-term holder of shares and prevent them from trading the shares to take advantage of short-term price movements. In these circumstances borrowing shares allows these investors to trade the borrowed shares through their collateral accounts without changing their long-term holding. This ability to trade borrowed shares also allows long-term investors to offset or hedge the risk of poor performance from their long-term shareholding.

Market makers, such as brokers, often require the ability to borrow shares for day-to-day share trading. This is often the case for small-cap companies where there may be few shares available to buy on the open market. When a company’s shares can’t be easily be bought or sold on the open market, these companies and their shares are described as being illiquid. Market makers and institutional investors can lend and borrow shares amongst themselves as a way to trade illiquid shares.

Short selling, where traders attempt to profit from future price declines, relies on share lending and borrowing. A short seller will borrow shares, for a defined length of time, to sell on market in the belief they can buy them back at a lower price when they are required to return them to the stock lender. Short sellers can do this because the underlying owners of the shares agree to allow their broker or fund manager to lend their shares in exchange for a lower custodian administration fee.


Lending and borrowing of shares includes the transfer of beneficial ownership to the borrower. As such, it can result in significant movements in the beneficial ownership on a company’s share register, despite the ultimate owner of the shares not changing. The collateral accounts of some custodians may appear directly on registers and show regular changes in the size of their holdings as lending and borrowing positions are taken up or ended. Collateral positions may appear underneath the custodians named on the face of the company’s share register, however these positions have little visibility without further analysis. As institutions are the primary users of stock borrowing and lending, rises in the value of collateral holdings are often associated with decreases in institutional investment (and vice versa).

These collateral account movements can look like buying or selling by the investors whose funds are administered by custodians, when instead, these positions may be changing simply because of lending or borrowing activities. The in-depth beneficial ownership analysis of share registers conducted by FIRST Advisers is extremely valuable for companies as it allows greater visibility of ownership beneath the large custodians appearing on a register. This offers a much better understanding of the movement of borrowing and lending positions and how that may affect a company’s share price and trading volume.

31 May 2021

All you need to know about Short Selling

SALONI SURI, Investor Relations Executive. Overview Short selling is a simple concept—an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender. In the period between selling borrowed stock and buying it back the investor is said to be ‘Short’ of stock, hence the term short […]

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30 March 2021

Who’s really on your register?

IDENTIFYING THE BENEFICIAL OWNERS OF SHARES   ROWAN CLARKE, INVESTOR RELATIONS The ability to interrogate a company’s share register to identify its beneficial owners provides important information to Directors. In addition to identifying who is making decisions to buy and sell shares, it enables the Board and senior management to identify such things as where […]

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30 June 2020

A new number 3 share registry

GILES RAFFERTY, Corporate Communications. An interview with Ben Kay, Executive Director, Automic At FIRST Advisers our shareholder analytics team works with all registries in the delivery of beneficial ownership analysis reports to our clients. We have watched the increasing penetration of Automic Group as a new player in the registry market in recent years and […]

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30 September 2019


BEN REBBECK, EXECUTIVE DIRECTOR Poor retail voter turnout is often accepted as ‘the norm’ and put down to reasons such as lack of retail investor interest to lack of company engagement. While these factors may partly contribute to poor retail voting, there is one structural cause that is relatively unknown and therefore not addressed by […]

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3 September 2019

FIRST Advisers Annual Guidance Report – FY20

DAN JONES, MANAGER SHAREHOLDER ANALYTICS During August we monitored companies in the S&P/ASX300 Index that reported for the period ending 30 June 2019, building a picture of the approach to guidance in this market and what that guidance is telling us about outlook for FY20. Victoria Geddes, Co-founding Executive Director at FIRST Advisers said “If […]

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2 October 2018

The Rising Tide of Passive Investment

Dan Jones, Shareholder Analytics and IR The popularity of passive investment amongst institutional and retail shareholders continues to grow and for good reason. Passive funds have outperformed active in each year since the GFC. The term ‘passive’, however, may well be misleading. While it does describe a manager’s approach to automated stock selection and investment, […]

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5 March 2018

Analysing Guidance – February 2018

Dan Jones, Shareholder Analytics and IR During February we monitored all companies in the S&P/ASX300 Index that reported for the period ending 31 December 2017, building a picture of the approach to guidance in this market and what that guidance is telling us about the outlook for FY2018. There were 214 companies within the S&P/ASX […]

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10 April 2017

The Institutional Voting Process at AGM’s and the Value of Vote Tracking

Daniel Jones, Shareholder Analytics The Scenario We’ve all seen it; a company in the midst of a contentious voting situation at an AGM with management nervously waiting on the final proxy vote count. Less than 48 hours before proxy voting is due to close, a significant number of votes are lodged with the Share Registry […]

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3 November 2016

The Activist – Pariah or Positive Catalyst for Change?

VICTORIA GEDDES, ECECUTIVE DIRECTOR The role played by the activist in the US capital markets has moved over the past 10-15 years from pariah to one of being a positive catalyst for change. Today proxy contests associated with nominations of independent directors for board seats are more likely to be won by activists than the […]

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5 July 2016

Short Attacks: The new wolf pack

VICTORIA GEDDES, ECECUTIVE DIRECTOR Those who have been on the receiving end of a short attack describe the process as akin to being at war, or being pursued by a pack of wolves, with the company’s very destruction their opponent’s goal. A short or bear attack, to make the distinction clear, is not the same […]

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11 February 2016

IR Managers: Think your firm has no peers? Think again!

I’ve heard it time and time again. “We cannot target investors based on a peer analysis because we… …have no peers …no direct peers” …no local peers” …no peers of the same size” To you that subscribe to this view I would like to challenge your definition of a peer. Whilst in your eyes a […]

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30 November 2015

It’s Enough to Give Your CEO Nightmares

FIRST Advisers, Investor Tracking and Solicitation An unknown shareholder has doubled their shareholding in your company overnight but they can’t be identified because they are protected by privacy legislation in their offshore jurisdiction. Or suddenly one day that unassuming one per cent shareholding held in a prime broker intermediary account disappears and is replaced by […]

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22 June 2015

The Right – and Wrong – Way to Target Investors

Ron Cameron, Senior Adviser, Investor Relations Public companies seeking to court new investors and build relations with existing ones will almost always be told by some register analysis providers that they should focus on targeting those investors with underweight or overweight positions in their stock, relative to a particular index. In other words, it’s those […]

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2 December 2014

7 tips for Soliciting Shareholder Vote

In an age when the interactions between listed companies and their shareholders are increasingly automated and carried out electronically, the relatively low tech practice of soliciting votes still has a decisive role to play when companies need to win support from investors. The two strike rule at annual general meetings, increasingly bold activist investors and […]

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