ADI on the back burner, page-99

Under a standard lending agreement, the borrower gets the stock and the lender gets collateral. Both now have all the legal rights to do pretty much whatever they want with them. The stock borrower is the owner until they sell the stock.

The wrinkle in this is that the end user, ie hedge fund or shorter, uses a prime broker or stock lending agent, who holds the borrowed stock, so for example, if my PB is MSTAN, they borrow the stock and become legal owner until I sell it. They arrange the delivery/settlement. Alternatively, a retail investor may use a CFD provider, which is similar insofar as the provider is the one who borrows and therefore possesses the stock until the investor sells the CFD. The provider sells stock to hedge their CFD with the investor.

So the borrower does get the title to the stock, but the shorter doesn’t usually legally possess title at any time in the process of securing borrow and selling short. I agree that HC should probably have a category for economic position being long, short or none. This would cover all derivative related positioning and get to what the disclosure is designed to do - give a sense of whether the user would benefit from the share price appreciating or falling.