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For one, it doesn't affect their pricing. If they're confident that the price will go up, then collecting some more money on lending fees is just icing on the cake.

For two, it helps to understand who actually owns shares. Most individuals trade in a "margin" account in which the trader gets some additional liquidity in exchange for lessened rights. These people don't actually own the shares they buy -- they are in fact owned by their broker, who keeps a pool of all the shares their clients purchase. Because of this, the broker can loan out some of the shares in that pool for additional revenue. If I remember correctly, there's little risk involved if the clients sold more shares than were still in the pool because the broker can simply call the loaned shares and force the borrower to find another lender. Additionally, dividends are not diminished by lent shares because the borrower is forced to pay the forgone dividend to the lender. There is, however, trouble with voting -- you can't vote shares you don't own, and your broker can't vote shares on your behalf if he doesn't own them either. So in effect, your voting power is diminished by the percentage of shares lent.

If you don't want your broker lending out your shares you can use a cash account instead. This puts the shares in your name, but you lose your ability to sell shares before the purchase has settled 2 business days later. Additionally you can't short-sell or borrow money. None of these are a great hindrance to a long-term investor though, so it may be worth the trouble.




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