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Loaning out Tesla Motors shares: how did it work for you?

Loaning out Tesla Motors shares: how did it work for you?

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What has been your experience and what do you know about loaning securities, especially Tesla Motors shares? What are the benefits and risks? How exactly does it work, what are the particulars and things to look out for? Did you get paid a fee or interest for loaning your shares? How much, how did that work, and did you have to sign up for that such as committing to lend them for a given period? I think I'd especially like to hear from investors who have experience with this, but of course if you have an opinion please share it no matter where you are coming from. Thank you.

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I read a few times on these boards that some of you were offered something, a percentage perhaps, to lend your shares of TSLA to short sellers I assume. I have no experience with this and have never been offered, so could someone explain more about this and what you mean exactly. Thanks.

ian t.wa.us | June 27, 2013

I think this question was answered in one of the "investing threads". I'll see if I can find it as I have a general idea but don't feel comfortable trying to explain it.

Then again...

http://lmgtfy.com/?q=how+does+short+selling+work

Here's a good one I found. Nice and succinct...

http://www.thestreet.com/topic/47104/short-selling.html

Cheers!

TeslaRocks | June 27, 2013

Thank you for attempting to explain, goneskiian.

Perhaps I should be more clear, though. I know what short selling is, but I'd like to confirm is whether someone can get paid a rent of some sort, perhaps for their commitment to lend a stock without asking for it back by at least a certain date. The owner of the stock who is lending it out would be getting paid to forfeit their right to ask for it back during a specified period. Is this correct? If it is as how I imagined, I'd like to hear the details of how that works for you, whatever you care to tell me, but especially the mechanics of how to do this and the risks and rewards involved. I suppose you lose your ability to vote those shares while they are lent out. Any additional info is welcome. Thanks.

TeslaRocks | June 27, 2013

Maybe I'm using the wrong key words, but I've not been getting the answer to my question from Google, which is why I posted it here.

ian t.wa.us | June 27, 2013

I thought I might have misunderstood you.

Maybe this will answer it for you...

http://en.wikipedia.org/wiki/Securities_lending

I did a google search for "loaning shares of stock".

Cheers!

martijn | June 27, 2013

Don't ever lend your Tesla stock (or model S) to these strangers.
They want desperately Tesla to fail and only mean to harm Tesla and make money over it.
Although. The short squeeze from 35 to over 100 was really nice, and did hurt them severe.
So if they can build up lots of short without Tesla stock dropping under, say 100 or 90, there is a nice potential for another short squeeze.
I really hope there will be hugh short-positions when gen3 becomes a success.

I know. Not a answer to your question. But just my thoughts when I read about shorting TSLA

TeslaRocks | June 28, 2013

@goneskiian

Thank you for finding this for me. I'm usually good at research, but like I said I was having no luck and wasn't sure what it was even called.

From this reading, I think I'm referring to the fee for borrowing shares. It's also called interest, as I understand it is a fee that is a percentage of value of the shares. What type of rate have people been seeing or receiving? I'd like to know if that is payable to the rightful owner of the shares, in other words the lender, or to the brokerage. Also, does anyone have experience with the particulars of such arrangements and agreements? Where are you, Brian? I bet you have experience with this. I understand lending shares causes you to lose voting rights while the shares are lent. That may be the greatest threat to the company as a whole, as is suggesting martijn. Perhaps a desire of shareholders to vote at the AGM, to make sure their views and interests are represented, partly explains the timing of the first short squeeze (which provoked the others) when shareholders called their shares to be able to vote them. The last part of the article also seems to warn us of possible gimmicks and tax implications. I am clearly not interested if it presents more significant risk or is treated as a sale in the eyes of the taxman.

@martijn

As I wrote above, I think there could be concerns if lending shares gives voting rights to the wrong people, but the new shareholders who bought borrowed shares would likely be Tesla supporters otherwise they probably wouldn't be buying shares in the first place. Borrowing shares to vote them instead of selling them might be possible, I don't know, but doesn't seem likely. I think the main thing is for shareholders to keep an eye out for news, such as a takeover bid, special items, and of course the AGM, and make sure they can vote their shares at those times to vote against takeover bids and generally in Tesla's best interest in all matters. Of course, one should also watch out for fraud, gimmicks, and insolvency of their broker, it seems. Psst... Don't tell any short sellers, but (I strongly believe that) short selling is harmless to a company supported by true believers. They might succeed in driving down the price momentarily, allowing us to buy more, then they might get squeezed as they are left owing a stock that could hypothetically rise to infinity, providing a fun ride for owners and also extra protection from takeover bids if the poison pills aren't enough. Although it might not be clear to the untrained eye, the stock price does not really influence the health of the company except if the company needs to raise more cash by selling shares. Although the short squeeze is pretty annoying to people like me who are still waiting for a good opportunity to buy into the shares (I only shorted put options so far, making me long with very limited upside potential). I'm more of a value investor, although Tesla is a company I like and believe in, so when the share price goes ballistic, I get a little depressed and envious for missing out. Time for me to crunch some numbers and figure out if the current valuation is at all justified, or more accurately, if I can justify to myself buying TSLA at over $100 a share even though I thought it was overpriced at $30.

Brian H | June 28, 2013

Worry not about voting. Elon & friends have enough clout to vote in whatever they want. In the last shareholder's meeting, the motions offered were passed with about 90% majorities before they were even read out and formal voting tallied.

TeslaRocks | June 30, 2013

I edited the title and thread header to better reflect the subject of the thread. Good to know that voting is not a current concern, Brian.

More opinions welcome.

Brian H | June 30, 2013

They collected proxies to get to that % in advance, I'm sure.