Fidelity Wordwide Investment is reviewing its securities lending program.
The Financial Times, which first reported the story, quoted Chief Investment Officer Dominic Rossi telling a UK government accounts committee the following: “The idea that we would lend the stock that we obviously like, otherwise we would not own it, to someone who is then going to short it does not really make much sense.
“It is not in the interests of our clients to have to foster that short selling, nor is it in the interests of the company in which we invest. We do a very limited amount related to dividends and I suspect even that practice will stop shortly.”
A spokesperson confirmed the review and said: “The benefits of stock lending are becoming much more marginal and that, while our motivation has always only been to deliver additional value to our fund shareholders, we are increasingly questioning the extent to which this exists.
Regulations such as the Financial Transaction Tax threaten to erode the profits generated from securities lending. With the FTT, stock loan between two parties would lead to a tax on securities that is double the “stated amount,” meaning that the 0.1% tax could be applied anywhere up to ten times. In this situation, the rate collected by the EU would not be just 0.1% of the purchase price, but 1% of the purchase price of the stock.
Additionally, the European Securities and Markets Authority’s (ESMA) guidelines on securities lending are requiring profits from the activity to be returned to the investors.