One of the main risks of lending your shares is that brokers may not act entirely in your best interest at all times. It's tough to imagine how that might impact TSLA lending when extreme circumstances occur -- e.g., VW short squeeze -- but it would be best to keep your eyes open.
A Wine Mogul Says Fidelity Cheated Him Out of Millions
Good article
@Rarity. Thank you for sharing.
My own takeaway from this article are a few things:
1) A good explanation for why we can mark Elon's shares in the "not available to be borrowed" category (and other major shareholders). They could lose control of their company as a result of market illiquidity.
2) If you are establishing a large position in a company and intend to exercise control as a result - this is why you don't do so in a margin account, and why you don't permit your shares to be available to be borrowed by short sellers.
In the article, Fidelity found itself lending out shares in sufficient volume, and was a sufficiently large source of shares for short sellers, AND a big glob of the shares Fidelity were lending came from a single shareholder that then recalled those shares (by moving out of a margin account, among other actions), that the market proved to be sufficiently illiquid to satisfy the demand. For Fidelity to perform, they ended up in a position where they were competing in the market with their own customer. Not good.
This provides another insight into the risks involved in lending out one's shares, and from that point of view is quite valuable. I can then make my own assessment of this risk, and it's potential impact on me.
And we should all be aware of just how easy this could go sideways for us. When a short seller "sells to open", they in a very real sense create new shares in the market. As a result of short sales, there are 175M (ish) shares of TSLA that people in the market think they own. There are 150M(ish) shares that actually exist, so to resolve back to the 150M (ish) actual shares, a market price needs to be found that will persuade 25M(ish) owned shares that can be purchased and extinguished (buy to close by a short seller).
How high does the market price need to go to find those 25M longs that are willing to exist TSLA?
This risk is such that if I were in a decision making or control situation, then I would absolutely make sure my shares were unavailable to be lent to shorts. That means no margin borrowing against my shares, and no Fully Paid Lending Program. I'd say that it's this dynamic that is an important contributor to the relative scarcity of shares to be borrowed.
