Bonouvrie says that when short selling is combined with stock lending, it all goes unreported. “It’s a vicious circle: a stock gets lent out by a custodian, hedge funds short it, super funds say great, the share price has got cheaper, buys some more, it goes back into the custodian, gets lent again, the hedge funds borrow more, short sell it, super funds say great it’s even lower, buys some more, gets lent out again, and its just a big spiral –there’s no restrictions on it at all.”

Williams says it is the same as the profiteering that had been going on the long side with the private equity. “The surveillance is not working. People dealing in insider information and misinformation are not being prosecuted.” Greg Clerk, a consultant with JANA Investment Advisers, doubts transparency will involve disclosing the positions of individual short sellers. Large short positions are extremely risky, he says, and if you knew which hedge funds were holding them, it would be too easy to squeeze them. It would have to be disclosure around the aggregate position, but he admits he is not sure how much that information would be helpful.

“It won’t allow the ASX to see who is circumventing the rules, but it has to be better than the opacity we have now. “If you knew that zero stock was on loan and the price was diving, then something is definitely wrong with the company. But if there was a lot out on loan then you could say maybe there was some nefarious action going on.”

Baked-in opacity

According to lending agents it is not that the securities lending industry is intentionally withholding information; it is the nature of the industry which makes the information difficult to gather. Mark Faulkner, managing director at Spitalfields Advisors, a UK consultancy, says it’s an over-the-counter industry – it doesn’t have a central exchange either in individual markets or globally. “It’s not an industry where historically it’s been easy to understand what’s been going on,” he says. Securities lending developed from an operational base many years ago and is yet to find a central way of dealing on an exchange or electronically, where all the information might be available.

“While it’s an enormous business generating billions of dollars on a global scale, it’s quite difficult for people to believe that it is broadly done by the exchange of telephone messages, Excel spread sheets and lists, it’s still got some way to go to be in the 21st century,” Faulkner says. “There are initiatives, electronic systems, around to address that, but they don’t get global traction easily. It’s only in the past decade that front office people have really been focussing on this.”

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