Short Squeeze

Guys,

I found myself on another stock forum explaining shorting and how clearing brokers/custodians with clients (by business entity) with short positions have to either cover internally, or from other brokers, by borrowing stock from other entities to cover the short.

MSB is pushing 10% in aggregated shorts now - I am not against shorting per se and I have short positions in a few LIQUID Aussie and overseas stocks. Shorting is an actual market necessity where options and other derivatives are traded to maintain an orderly market (not the case for Australian Mesoblast). But in MSB this is now a significiant ratio in what is a heavily retail owned stock. The four stocks above MSB in terms of shorting, are either actually, or at least previously, ASX200 shares that have larger non-retail ownership.

Mesoblast has a large retail ownership who are probably ignorant to the fact their clearing broker or custodian is possibly lending their stock to cover short positions - every short position by a business entity has to be covered by other long entities (i.e. borrowed/lent stock). Most investors will not be aware they have often agreed to this by default on opening a brokerage account - its a nice earner for custodians/brokers who charge a fee to short sellers for stock lent.

If MSB shareholders en masse demanded their brokers did not lend their stock, they would at least cause a raise in the borrowing costs of MSB stock. At best they might actually cause a dearth in stock available for borrowing - this often happens in corporate actions in bigger stocks and is a nightmare for options/statistical arbitragers who are not shorting for any particular directional trading motivations. Custodians/Clearers literally have to provide borrowed stock for every net short position taken. If enough MSB shareholders insisted on clearers not lending their stocks, it would cause stock recalls, that might ultimately see short sellers forced to buy back at least some of their shorts by their respective clearers - sometimes becoming a self-fulfilling "short squeeze".

https://www.asla.com.au/about-securities-lending/
https://asic.gov.au/regulatory-resources/markets/short-selling/requirements-for-disclosure-and-reporting-of-short-sales/

Lending agreements will vary by brokers and as said many brokerage account holders will not even be aware they agreed to them. It is also very difficult to get brokers to not lend, but not impossible - there has been a large move in the US by retail holders in GME to do this.