If you are a retail investor and have yet to sign up the share lending program with CDP (Central Depository) to enhance your overall portfolio return, perhaps it's time for you to pay some attention, read this:
"The lending of securities has quietly become a big business. The global volume of securities loans was $2.3 trillion in the fall of 2008, according to estimates from U.K-based consulting firm Data Explorers." ~ Source: Investopedia
If we were to factor in a conservative 3% compounded growth since year 2008, this 2.3 trillion number would have reached $3 trillion as of 2017, so it is quite a large number to reckon with, and there’s some good reasons for the service to be in demand
Some Facts and Information
So, what is Securities Lending & Borrowing (SBL) ?
In essence, SBL is about the short term transfer of stocks from the lender to the borrower, whom, by doing so, earns a lending fee, while the borrower, pays a fee to borrow the stock whom in turn take ownership of the shares to carry his trading plan.
This is a service that was provided by SGX around year 2002, it however, it may have eluded many average investors as it is not publicized or marketed extensively by SGX.
As this article is meant for individual who wish to know more about lending out their shares on CDP, we shall, from here on, focus on Shares Lending (on the flip side, Shares Borrowing is meant for institutions / brokerage houses who wish to borrow shares from the exchange. For these establishments, SGX does provide the shares available for lending, on this page:
SGX Lending Pool: https://www1.cdp.sgx.com/sgx-cdp-web/lendingpool/show, (as of Dec 2017).
Based on information from CDP website, CDP offers more than 600 SGX securities (upped by 4 fold since year 2010, which was lingering at about 150 selected counters then) for lending within its SBL program. It is also noteworthy to know that under this program, CDP is the counter party for all lenders and borrowers, hence, in my personal opinion, the risk on counter-party risk is almost non-existence.
As we know, SGX website provides a web of information which can be quite confusing at times. Here’s some simple instructions to get to the ‘Security Borrowing and Lending’ Section:
Go to SGX.com website ⇒ ‘Depository” ⇒ “About CDP Services” ⇒ “Securities Borrowing and Lending” (as of Dec 2017)
Before embarking on the advantages, let’s first tackle the one and only downside as far as I could tell - for shares that are being loaned out, one losses the voting rights, which may be a neutral factor for many individuals except for the active investors who like to participate in the EGMs and AGMs.
So, what are the main advantages
The main advantage of Shares Lending, by registering as a Securities Lending Participant with the CDP, one has the potential (the word potential is used here as the lending out of shares is not guaranteed and is subjected to demand and supply of the shares in your portfolio) to earn additional percentage return on one’s portfolio. All CDP account holders are eligible to participate as Lending Participants and there’s no fee involved to sign up.
If you are concern of losing out of activities such as rights / bonus issues or dividend, fret not, as the securities that are being lent out are entitled to the same corporate actions, including receiving your dividend payout. Also, you may sell your shares sitting within the CDP even if it is being lent out at the time you decide to sell the shares.
Considering the minimal downside and multiple upsides, this is a straightforward decision and hence, it is recommended that all investors should sign up for the share lending program service provided by CDP.