Japan’s GPIF Seeks Data on Effect of Securities-Lending Suspension

The $1.73 trillion pension giant has issued a request for information regarding its 2019 decision to stop lending securities to short sellers.



Japan’s $1.73 trillion Government Pension Investment Fund has issued a request for information  on quantitative analytical methods to analyze the effect that the pension giant’s 2019 decision to stop lending securities has had on the market.  GPIF said it will consider conducting research/analysis relating to stock-lending activities based on the information it receives through the RFI.

“Given the certain period of time has passed since the suspension and as a result the market data has been accumulated gradually,” the pension fund said, “GPIF would like to consider to conduct quantitative analyses on the effect of its stock-lending suspension to the market.”

In late 2019, the GPIF suspended stock lending for short selling, calling the practice inconsistent with its responsibilities as a long-term investor. The move was considered a blow for short sellers, who rely on securities lending to bet against companies. Short sellers borrow shares and immediately sell them, betting the price will fall before they buy back the shares and return them, pocketing the difference.

Critics of short selling, such as Tesla CEO Elon Musk, argue it is a destabilizing practice because short sellers have an incentive to drive down a company’s share price. Musk has even said it should be illegal. However, short sellers see themselves as a healthy counterbalance to investor over-confidence and corporate spin and misinformation.

“The current stock-lending scheme lacks transparency in terms of who is the ultimate borrower and for what purpose they are borrowing,” the GPIF said at the time.

The fund had said that as part of its stewardship responsibilities, it requires its asset managers to improve the long-term value of investee companies by exercising voting rights conscientiously, as well as engaging in constructive dialog with the companies. However, the fund said stock lending is contradictory to this requirement because it results in a temporary transfer of ownership rights to the borrower.

“This effectively creates a gap in the period in which the stock is held by GPIF and can be considered to be inconsistent with the fulfillment of the stewardship responsibilities of a long-term investor,” the fund said in 2019. “Moreover, the current stock lending scheme lacks transparency in terms of who is the ultimate borrower and for what purpose they are borrowing the stock.”

The pension fund’s RFI relates to any information and ideas of quantitative analytical methods based on data; the “information and ideas” of quantitative analytical methods and necessary data for analyzing the effects of its stock lending suspension to the market; and any information supportive to conduct the quantitative analyses. It is also looking for information relating to recent stock lending market trends, developments, and main players, as well as academic research papers relating to stock-lending activities, and any other matter relating to stock lending. The deadline for the RFI is March 31.

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Japanese Pension Giant GPIF Suspends Stock Lending for Short Selling

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