The Bank of England today posted the minutes of the Securities Lending Committee meeting held earlier in February 2021.

At the meeting, the Committee Members talked about the recent moves in GameStop and the spike in retail trading activity.

Concerns were shared about the short-selling headlines emanating from some of press coverage of these moves. Members expressed their disappointment that the benefits of short-selling and lending for price discovery and market liquidity were being drowned out by negative headlines on short-selling.

The members discussed whether the regulators, e.g. the Financial Conduct Authority (FCA), should make a public statement on the benefits of short-selling and securities lending to the market.

Members unanimously agreed that a lot of time and resource had been deployed in educating regulators and market participants on the benefits of securities lending and short selling. There was concern that all this work could be undermined by the recent activity and associated press and social media coverage.

Some members were worried that the discussion on securities lending was moving out of the economic arena and into the political one. Members shared their frustration that the securities lending industry was coming under criticism yet there was no medium or mechanism through which the industry could counter those arguments.

Let’s recall that the FCA’s initial statement on the spike in market volatility was quite blunt. The regulator said:

“We’re warning UK investors in certain US listed shares which are being discussed online to use extreme caution. Volatile markets are unpredictable and mean you can quickly lose money. Losses are unlikely to be covered by the Financial Services Compensation Scheme.”