03.03.10, 7:30 PM ET
High-net-worth investors are becoming bigger players in the securities lending space.
Of the $8.6 trillion worth of individually purchased equities held by U.S. retail brokerages, $3.4 trillion are stocks that aren't affiliated with a mutual fund or hedge fund according to a recent Finadium report. Josh Galper, managing principal, Finadium, estimates that there is $1.1 billion in revenue in retail securities lending and 60% of that revenue is going in the retail investor's wallet.
That's significant since this business of lending out securities to short-sellers has traditionally been one for institutional investors like hedge funds, endowments, insurance companies and pension funds. Securities lending can produce annualized returns between 3% and 20%. Galper notes that investors receive higher premiums for lending out "hard to borrow" securities, particularly small- and mid-cap stocks.
High-net-worth retail investors are getting more interested as a result of increasing transparency, Galper says, noting that many brokerages are making it easier to lend securities. Indeed, brokerage firms are sitting up and taking note of increased retail securities lending. Fidelity, Morgan Stanley , Bank of America Merrill Lynch, Charles Schwab , UBS , Pershing and E*Trade are noted in the Finadium report as having lending programs for fully paid securities. Wells Fargo , TD Ameritrade and Raymond James do not have a securities lending program, according to the report.
In the flap over short-selling during the bear market, securities lending got a bad rap, Galper says. Investors shouldn’t be leery about lending out their stocks because the data show that there’s no direct relationship between a retail investor lending out stock and that stock’s price performance.
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