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Stock Borrowing and Lending(Applicable to private wealth management clients)
Short selling is a strategy that allows investors to gain from the decline in price of a security. Typically, short-sellers "borrow" the securities to be sold, and later repurchase identical securities for return to the lender. If the security price falls as expected, the investor profits from the deal. However, according to the Securities and Futures Ordinance of Hong Kong, investors are prohibited to naked short sell any securities if they do not possess the security or believe that they will have a loan of the security at the time of sale.
To enhance your opportunity to make potential profits even from a declining market, we provide Stock Borrowing and Lending services. You can now enjoy the flexibility of borrowing, short selling, and repurchasing securities via our multi-channel trading platforms conveniently and effortlessly.
You may refer to the HKEx website for Designated Securities Eligible for Short Selling.
Stock Borrowing: You can borrow stocks from Haitong International by placing instructions either by phone or in writing. The transaction will take place upon confirmation of the stock’s availability for short selling and your acceptance on our stock-borrowing offer.
Short Selling: You can call us anytime to short-sell with adequate deposit ready in the SBL account on T-day (i.e., transaction day).
Stock Returning: You can either repurchase the stocks via our Sales Team or online trading channels, or transfer the respective stocks from another custodian or brokerage firm. A clear instruction that the transaction is for stock returning purpose is required. On T+2 day, money will be transferred into your account while the borrowed stocks will be returned to complete the deal.
Example
Assume shares of Company X are currently selling for $10/share. Predicting that it will trade lower in coming days, an investor can borrow 1,000 shares of Company X from Haitong International, and immediately sell those shares for $10,000 ($10 x 1,000shares). If the share price later falls to $8/share, the investor can buy back 1,000 shares for $8,000 in the market and return them to the original owner while making a $2,000 profit (less any interest incurred and service charges).
1.Profiting from a declining market
Under normal circumstance, investors can only profit from an upward market trend after they purchase a stock, but suffer a loss if the market goes through a downward trend. Stock borrowing and lending allows investors to benefit from a declining market. Investors can borrow stocks from the brokerage firm, short sell the stocks at a high price, and then buy back the stocks from a lower price for pocketing the price difference.
Besides, the bid-ask spread for short selling is lower than that of warrants, and it does not rely on the liquidity provided by the issuers. Volatility and number of outstanding volume of warrants do not affect a SBL investor to profit from the full altitude of the declining stock price.
2.Arbitrage
For a stock with issuance of rights, arbitrage opportunity emerges if the stock price is higher than the sum of the rights price and its exercise price, while investors can profit from short selling the stock and exercising the rights bought at the same time.
Example:
Stock price = $5
Rights price = $0.5
Exercise price = $4
Arbitrage profit = $5 – ($0.5+$4) = $0.5
3.Hedging
Short selling stock forms a hedge against the position of structural products (ELN and Accumulator, for example) of an investor if the stock price falls below their strike price.
Example:
Assume that an investor hold a TECENT (700) May ELN with a strike price of $200. If the stock price of TECENT (700) falls below $200 and the investor conceives that the stock price will keep falling, short selling an equivalent value of TECENT (700) can form a hedge against the fluctuation of the stock price.
4.Stock delivery
If it is confirmed beforehand that there are stocks to be lent, the investor with a short call position can borrow a stock for fulfilling his obligation of stock delivery on the expiration date. The investor can postpone the buyback action until the stock price falls to a lower level.
Example:
The investor’s short position of 1000 TENCENT (700) May options with a strike price of $200 is exercised on 29 May and he must buyback 1000 shares of TENCENT (700) on 30 May (T+1). If the investor owns a SBL account and confirms there are the stocks to be lent beforehand, he can borrow 1000 shares of TENCENT (700) for fulfilling his obligation of stock delivery first, and postpone the buyback action till the stock price of TECENT(700) falls to a lower level.
You have to maintain a margin securities account for the account opening of Securities Borrowing/ Lending Account. The documents required for opening Securities Borrowing/ Lending Account are as follows:
- Securities Borrowing/ Lending Account(s) Opening Agreement
- Suitability Questionnaire
- Stock Borrowing and Lending Agreement (2 sets)
- Stock Borrowing and Lending Agreement Registration Form (2 sets)
- Points to Note of Securities Borrowing/ Lending Account and Short Selling
If you would like to open Securities Borrowing/ Lending Account or you have any queries on securities borrowing and short selling services, please contact your account executive for more details.
A minimum of cash amount equivalent to 120% of the market value of the borrowed stock should be deposited with the Company and should be maintained throughout the borrowing period.
If the margin level falls below 115%, additional margin deposit is required to make good the shortfall.
If such margin level falls below 110%, Haitong International Securities Company Limited may buy back the stock for and return them to the stock lender.
- Client can contact account executive to give stock borrowing instruction by providing the stock code and number of shares that you would like to borrow. You are reminded cautious that the stock must be in List of Designated Securities Eligible for Short Selling in HKEx; otherwise, the instruction will not be accepted.
- After the instruction is received, account executive will confirm the stock borrowing arrangement and stock borrowing interest rate with Dealing Team.
- Client can consider the stock borrowing interest rate offered by us. The stock borrowing instruction will be executed once client accepts it and confirms the instruction.
- Once the stock borrowing procedure has been completed, client can sell the stocks.
- Client may refer to the daily and monthly statement for the details of the relevant stock borrowing and shorting selling transaction.
- Client can contact the account executive and give instruction for returning the borrowed stock when it is necessary. The client should provide the details as follows:
i. Securities Borrowing/ Lending Account number
ii. Stock name
iii. Number of shares
iv. Borrowing date (settlement day normally is T+2).
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- Customer Service Hotline: (852) 3583 3388
- 400 001 1822
- Complaint Hotline: (852) 2801 6128
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15/F, One Island South, 2 Heung Yip Road
Wong Chuk Hang, Hong Kong
Fax: (852) 2530 1689
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