Japan’s Government Pension Investment Fund (GPIF) announced that it has restarted its foreign stock lending service (securities lending operations), which had previously been suspended over governance concerns.
In fiscal 2022, the GPIF’s team conducted a research study on the impact of the suspension of stock lending on the market. Regarding the uses of stock lending in the market, the types of uses including short selling have been clarified and countermeasures exist for problematic uses (Empty Voting, etc.)
Although it is not possible to fully confirm the final borrower of the assets in the stock lending transaction, as a request from owners, the GPIF is establishing an information sharing system for asset management institutions and lending agents. In addition to efforts to ensure transparency, efforts are being made to require reporting of transactions to regulatory authorities in Europe and the United States.
In the future, asset management institutions will promptly take concrete practical measures, such as the selection of foreign stock lending agents. There are no plans to conduct domestic stock lending, the GPIF said in a statement (machine translated from Japanese).
Regarding foreign stock lending, which has been suspended since December 2019, efforts have been made to obtain lending profits and in order to balance this with the responsibility of stewardship, consideration will be given to the lending ratio, and a recall of loaned stocks will be possible.
In selecting a lending agent, the GPIF will consider sufficient experience in the lending market and risk management, and in addition to having a physical structure, the following conditions must be met:
- Be able to respond to recalls of loaned stocks
- Efforts to avoid stock borrowing for the purpose of exercising voting rights without ownership (Empty Voting)
- Monitoring the overall picture of each fund that conducts foreign stock lending, the lending status of each stock, the status of accepted collateral, and discussions
- Risk management: standards are established within the corporation regarding counterparties (borrowers), collateral accepted, etc.