Japan’s GPIF Stops Short Seller-Lending, Cites Unethicality

Japan’s Government Pension Investment Fund (GPIF) announced its decision to stop lending to short sellers in the industry last Tuesday, December 3, 2019. Under the new ruling, the largest pension fund in the world will halt its $390 billion practices to short sellers.

The GPIF said the practices are unethical and go against the responsibilities that come with being a long-term investor. In a statement made on the company’s website, it announced that “The current stock lending scheme lacks transparency in terms of who is the ultimate borrower and for what purpose they are borrowing.”

Following the announcement may by the Government Investment Fund, Elon Musk, chief executive officer of Tesla, voiced his support for the move. In a tweet made over social media platform Twitter, Musk said, “Bravo, the right thing to do! Short selling should be illegal.”

GPIF Stops Short Seller-Lending

GPIF’s move will affect short-sellers who mainly rely on borrowing funds from the pool of funding. Under the current scheme, these sellers market the stocks they get and bet on the price prior to falling, then reverting to buying back the shares, reports Reuters. Short sellers who participate in this lending and borrowing practice tend to earn by getting the difference from the ‘borrowed’ shares and the ones they sold on the market.

In the past, Musk has aired his concerns over the practice, saying short-sellers earned huge profits, reveals Fox Business.

Despite the bold move by the GPIF, industry experts and analysts believe that the group’s decision will only run for a limited time. Japan strategist Nicholas Smith states that “people that don’t understand it [short selling] think it’s this evil practice that benefits from bad things happening. The other people who benefit from bad things happening are buyers of bonds, and they don’t get the same kind of hate mail.”

Other industry experts believe the decision could impact the lending industry, saying it could radically change the landscape for smaller stocks.