Ed, the securities lending associated with short sales does not impact the number of shares outstanding or other company-reported share figures. As part of a short sale, the shortseller's broker arranges to borrow sufficient shares from a lending agent to effect delivery to the purchaser. These agents are normally large institutions serving as custodian for pensions, foundations and other large owners of the stock. State Street and Chase are among several custodian banks that provide this service. Securities law requires reregistration of the shares so that clear title can be transferred to the "new" purchaser. This effectively removes the original owner from the shareholder rolls. Standardized securities lending industry agreements entitle the lender to all economic rights of beneficial ownership to the shares, including any dividends, splits or rights distributed during the loan period. The shortseller is required to fund these payments for the lender. In effect, the original owner's holding is no longer counted among the shareholders of record, the new purchaser is. This avoids the double-counting of positions.
You can read more on this, if you'd like, at the Robert Morris Associates website. Hope this helps. Mawchek
>>You can read more on this, if you'd like, at the Robert Morris Associates website.
Thanks for the reference, but I think I'll pass. Your explanation was clear and plenty helpful.
So, the system ensures that shorting doesn't result in double counting of shares -- but maybe double counting would be better. I'm probably confusing myself, but I kinda see this working like the money multiplyer (or whatever it was called -- it's been 20 years since I studied it) in macro economics. If the bank lends out your money, it doesn't affect the amount in your account; similarly, my broker can let my shares be shorted and the title transferred to someone else, and as far as I know those shares are still in my account. Lending increases the money supply, so I think shorting increases the supply of shares -- at least until the loans are paid back.
Ok, I'm being dense and rambling. I should have been satisfied by Mawchek's fine explanation. I'll go to bed now and kick myself along the way.