The Global Stock market spans about $101 trillion in financial securities. And at any given moment, about $1.7 trillion is out on loan. Hedge funds, mutual funds, and other traders donâ€™t just buy and sell stock. They borrow it. Sometimes, theyâ€™re looking to short sell: If they borrow shares, sell them, and the price goes down, they reap a profit. Other times, they borrow as a way of hedging their stock positions or settling other deals. In the US alone, according to research from DataLend, about $954 billion in securities is typically on loan to some fund or another. Many players benefit from this little-discussed market. Sure, the borrowers can make some extra money. But the same goes for those who lend the securities out, including retirement funds and other large stockholders. They charge a fee for that loaned stock. And, yes, middlemen take a cut too, including prime brokers such as Goldman Sachs and Morgan Stanley and dedicated lending houses, or â€œagent lenders,â€ like BNY Melon and State Street. The agent lenders alone make about $19.2 million a day helping organizations lend out their stock, and the prime brokers likely make even more.
Itâ€™s an enormously lucrative market. And itâ€™s a market controlled by a relatively small group of players, most notably the prime brokers. â€œSecurities lending has historically been a closed network,â€ says Josh Galper, who runs a financial consulting firm, Finadium, that closely tracks stock loans. â€œIn order to lend or borrow securities, you need to be one of the players in this market.â€