@wazzie2my understanding is.it will depend on the SBL (stock...

@wazzie2

my understanding is.

it will depend on the SBL (stock borrow / lend) agreement. typically ownership remains with the lender. the borrow just has temporary rights over the shares which may include right to receive dividend, participate in a corporate action (eg rights issue) or in the case of a shorter . . right to sell the shares.

typical scenario when stock is borrowed to be sold short.

1. lets say insto A (index fund) owns 10mil shares.
2. Party B approaches them to borrow 2mil shares.
3. Insto A lends 2 mil shares to Party B and for lending they receive a rental fee. can be as low as a few percent p.a. or can be as high as 20% p.a when supply is low.

4. after lending insto A has 8 mil shares and right to receive 2 mil shares from party B. net 10mil

5. party B has 2 mil shares and liability to return 2 mil shares to Insto A . . so is net flat.

6. party B then goes about shorting and over next month has sold all 2 mil shares that it had borrowed.

7. at this time insto A . . holds 8 mil shares and still has right to receive 2 mil from B ,. . so is still net 10m

8. party B holds 0 shares and has a liability to return 2mil shares to A so net position = short 2mil. or negative 2mil

9. so the act of borrowing the shares DOES NOT create a short position. selling the borrowed shares does.

10. how this will then play out is that either B will buy the shares back in the market at some point and return them to A (this is closing the short position) . . and finish their borrowing agreement.

OR

11. party A will 'call back' the loaned shares at which time B will need ro either buy in market (close the short) OR borrow from someone else (continue the short) and return the 2 mil shares to A.

this is my understanding.

the stuff up in net shorts we saw over last week imo was due to one (or more) of the shorters failing to accurately report their short position.