Law Commons^™

Passive Exit, Joshua Mitts

Faculty Scholarship

In recent years, securities lending — making shares available for borrowing by short sellers who “sell first and buy later” — has been an object of increasing regulatory attention. Securities lending is linked to the growth of passive investing because large, buy-and-hold passive investors are among the largest lenders of portfolio securities. But relatively little is understood about the relationship between securities lending and passive investing. In this Article, I show how securities lending allows passive investors to generate revenue from a decline in the value of their investment portfolios in addition to borrowing fees determined by demand from the …