Superannuation fund UniSuper suspends lending to thwart short sellers
16 March 2020 Melbourne
Image: Shutterstock
One of Australia’s largest superannuation funds has suspended its securities lending programme indefinitely in order to stifle supply to short sellers amid the on-going coronavirus fueled market sell off.
UniSuper, which currently invests $85 billion on behalf of its 450,000 members in the higher education and research sector, has instructed its custodian, BNP Paribas Securities Services, recall all shares currently out on loan and suspend lending, without exception.
The fund’s chief investment officer, John Pearce, explains in a statement that UniSuper’s usual stance on securities lending is that it adds to market efficiency, while short selling "adds to liquidity and price discovery in an orderly market".
“However, we are now in a market gripped by panic and we believe that restricting the ability to short sell is in the best interest of promoting a more orderly market," he adds.
The fact that shares are not exclusively borrowed in order to facilitate a short position was not referenced.
Pearce also called on other funds to follow UniSuper’s example, noting: "We are only one fund and the efficacy of our actions will depend on how many other funds follow a similar path.”
The fund was not immediately available to offer details on the scale of its lending programme or how much revenue it might be forgoing through the suspension.
The securities lending programme's plug was pulled following global markets' slump to new lows as the coronavirus epidemic continued to worsen.
Several governments also ratcheted up efforts to slow the spread of the COVID-19 disease which has already infected more than 125,000 people worldwide and killed several hundred, by asking non-essential businesses to close, thereby adding further panic to investors.
The ASX 200 was not immune from the global trend and on Monday chalked up its biggest daily percentage fall on record.
UniSuper's decision to withdraw from lending also comes after a spate of market regulators around the world imposed short selling bans on stocks most affected by the global coronavirus pandemic.
Today, South Korea’s market regulator signed off on a six-month shorting ban in listed shares on the Kospi and Kosdaq exchanges.
UniSuper is understood to be the first lender to take the matter into its own hands by publically suspending its own programme in a bid to slow the sell off.
Commenting on move, Roy Zimmerhansl founder and practice lead of Pierpoint Financial Consulting, says: “To me, there is a distinction between UniSuper’s individual decision which they believe is in their best interests, that is different to a market-wide ban initiated by a regulator or exchange which has a wider obligation to the whole of the investment community rather than a perceived segment.”
He adds: “My concern with temporary bans, aside from impacting the liquidity and price discovery mentioned by UniSuper, is that when the ban is removed, if the company, country or global financial conditions have deteriorated, it is likely to create a catastrophic drop in price.”
“Or maybe short selling should be banned forever and people should accept that what they really want is not a market with all available information, rather one that is structurally upward biased?”
UniSuper, which currently invests $85 billion on behalf of its 450,000 members in the higher education and research sector, has instructed its custodian, BNP Paribas Securities Services, recall all shares currently out on loan and suspend lending, without exception.
The fund’s chief investment officer, John Pearce, explains in a statement that UniSuper’s usual stance on securities lending is that it adds to market efficiency, while short selling "adds to liquidity and price discovery in an orderly market".
“However, we are now in a market gripped by panic and we believe that restricting the ability to short sell is in the best interest of promoting a more orderly market," he adds.
The fact that shares are not exclusively borrowed in order to facilitate a short position was not referenced.
Pearce also called on other funds to follow UniSuper’s example, noting: "We are only one fund and the efficacy of our actions will depend on how many other funds follow a similar path.”
The fund was not immediately available to offer details on the scale of its lending programme or how much revenue it might be forgoing through the suspension.
The securities lending programme's plug was pulled following global markets' slump to new lows as the coronavirus epidemic continued to worsen.
Several governments also ratcheted up efforts to slow the spread of the COVID-19 disease which has already infected more than 125,000 people worldwide and killed several hundred, by asking non-essential businesses to close, thereby adding further panic to investors.
The ASX 200 was not immune from the global trend and on Monday chalked up its biggest daily percentage fall on record.
UniSuper's decision to withdraw from lending also comes after a spate of market regulators around the world imposed short selling bans on stocks most affected by the global coronavirus pandemic.
Today, South Korea’s market regulator signed off on a six-month shorting ban in listed shares on the Kospi and Kosdaq exchanges.
UniSuper is understood to be the first lender to take the matter into its own hands by publically suspending its own programme in a bid to slow the sell off.
Commenting on move, Roy Zimmerhansl founder and practice lead of Pierpoint Financial Consulting, says: “To me, there is a distinction between UniSuper’s individual decision which they believe is in their best interests, that is different to a market-wide ban initiated by a regulator or exchange which has a wider obligation to the whole of the investment community rather than a perceived segment.”
He adds: “My concern with temporary bans, aside from impacting the liquidity and price discovery mentioned by UniSuper, is that when the ban is removed, if the company, country or global financial conditions have deteriorated, it is likely to create a catastrophic drop in price.”
“Or maybe short selling should be banned forever and people should accept that what they really want is not a market with all available information, rather one that is structurally upward biased?”
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