South Korea’s biggest institutional investor National Pension Service has lent out its stockholdings worth 718 billion won ($633 million) to other investors for short-sales and other investment practices, collecting loan fees of 20 billion won.

According to National Pension Service (NPS)’s report submitted to the state affairs committee at the National Assembly on Tuesday, the pension fund has lent stocks worth 718 billion won in 216 companies to brokers and other financial institutions as of the end of June. Securities lending is essential for short selling, in which an investor borrows securities to immediately sell them in hopes to buying them back at a lower price, and the lender of the securities is compensated with fees and also can benefit through profits by shorting the stocks.

By value, the largest volume of stocks it has lent to other institutional investors was Hotel Shilla shares amounting to 74.5 billion won followed by OCI, LIG Nex 1, Kakao, and SK D&D shares.

NPS has recently been upping securities lending. It recorded 697.9 billion won in 2015, increasing from 669.2 billion won in 2014 and 425.0 billion won in 2013. The pension service earned 20 billion won in fees from lending securities.

When a company lends a stock of a third-party firm that it owns to another firm, the lender receives interest payments from the borrower. The borrower, usually institutional investors, then uses the borrowed stocks to short sell, form a basket, provide as collateral, and settle a stock trade.

Short selling is often blamed for stock price fall. But the pension service said less than 1 percent of the securities it owns are lent to other investors, and it is not plausible to assume that all lent-out stocks are used in short selling.

By Bae Mi-jung

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