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Wednesday, 24th April 2024 |
| Stock lending takes off at the ISE |
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The popularity of stock lending has increased rapidly at the Irish Stock Exchange over the last number of months and is expected to grow substantially over the next few years.
Stock lending is the process of borrowing stock from a large shareholder against a fee and selling it, before returning the stock to the original owner primarily for settlement purposes.
Although the Irish Stock Exchange has permitted stock lending since April 1999 it has only now begining to take off in recent months - partly due to the fact that it is only now that the industry are becoming aware of the opportunities for the Irish market not only for European and US equities but also for Irish equities.
One industry watcher estimated that once the Irish stock lending market was developed it would be worth o5 - 10 billion. In conjunction with a blossoming securities lending market - the much needed liquidity in Irish stocks is expected to have a positive knock-on effect on the Irish stock market in general as one of the main criticism of the ISE has been the lack of liquidity available. This liquidity seems to be driven by offshore participants.
According to the ISE ‘Securities lending is a vital component of well developed securities markets and this area of market activity has experienced strong growth in recent years in neighbouring capital markets, particularly those of the US and of the UK. In the past certain Irish taxation provisions impeded the development of an Irish securities lending market. However following representations from industry participants the Irish Revenue Commissioners approved arrangements for a favourable treatment of securities lending transactions. They issued an Information Notice in April 1999 and further amendments were made on a statutory basis in the Finance Act 2000.’
Typical lenders are large shareholders like pension funds and insurance companies while borrowers are traditionally the investment banks and prime brokerage institutions and mutual funds.
The Irish Stock Exchange then set about developing an appropriate infrastructure for securities lending in Ireland continuing on from its work in effecting changes to the taxation treatment of securities lending. In October 1999 the Exchange constituted a cross-industry working group to assist in the introduction of a securities lending regime to the Irish market. |
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| Article appeared in the July 2001 issue.
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