Securities lending

Lending shares can solve short-term needs of both lenders and borrowers.

Professional customers can profit from lending out their shares
Investors can borrow shares in order to sell short (profit from price drops)
We act as the contract counterparty and guarantor

Short trading for retail customers

How to find shares for shorting

Log in to the online equity trading service (top right). Under market, you will find the list ‘Shares available for short trading’

Borrowing shares – for short selling

Short selling is a strategy that is used when an investor expects a share to fall in value. In practice, shorting is based on borrowing shares, selling them at the price of the day, in order to then buy them back (hopefully) cheaper, before they need to be returned. If the share price drops you will profit from the trade. However, if the price rises, you will lose money. The potential for loss is theoretically unlimited.

NB! To be able to short, you must first apply for Securities financing inside our Equity Trading platform.

Short selling carries a very high risk and is not an investment strategy suited for beginners.

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Questions and answers about short selling, arbitrage and hedging

What is shorting?

Shorting, or short selling, is when you sell shares you do not own, but shares you have borrowed.

How short selling works:

You borrow a certain number of shares (by paying an interest rate/rent). You then sell the borrowed shares at that day’s share price. You do this because you believe the share price is higher now than what it will be when you have to give them back.

If you are correct, and the price drops before you have to give the shares back, you can buy the same quantity cheaper than what you sold them for before returning them. You thereby profit from the price reduction.

Shorting example

You borrow 100 shares and sell them immediately at that day’s share price of NOK 50. In total you receive NOK 5 000.

You have an agreement to return the 100 shares within 14 days.

After 10 days, the price of the shares you borrowed has gone down to NOK 40. You then buy 100 shares for NOK 4 000 and give them back before the deadline.

After your short sale you’re NOK 1000 in profit (minus the borrowing costs)

If you guessed incorrectly about the share’s price movement, the result would have been the complete opposite.

Read about risk in the next question.

What does ‘covered’ and ‘naked’ short selling mean?

We make a key distinction between two types of short selling, covered and naked. The former is when an investor selling shares actually has access to them at the time of the sale. In the securities market, this usually means that the investor has borrowed the securities from another investor before he sells or has a secure agreement about being able to borrow them. In this way, covered short selling will guarantee that the investor actually can deliver the securities he’s selling.

In Norway, it is only legal to do covered short selling. Ref. Norwegian Securities Trading Act Section 3-14.

Naked short selling is when the investor does not have access to the securities at the time of the sale but plans to obtain these at a later stage before returning them. This can be done in all markets where the delivery date for the asset is later than the date of the sale. For the stock market, the delivery of the shares (also called ‘settlement’) is often two days after the sale. The investor must buy or borrow the shares, so he has them ready for delivery for the sale he first made. Should the investor have sold shares he fails to deliver, he can be held financially and legally liable.

What is hedging?

In finance, the term ‘hedging’ means investing with the objective of removing or minimising the risk of another investment. In simple terms, hedging works as insurance for the investor.

So hedging reduces the overall risk in a portfolio. At the same time, hedging means that you earn less. You can compare this with insuring your car. The actual insurance policy will cost a little, but you may consider this worthwhile if the car is stolen or you crash it.

Simple example of hedging

You invest in Tesla. The car industry is cyclical, which means that Tesla sells more cars in economic uptrends and fewer when times are bad.

A way of hedging here would be to buy shares in something that does well when the economy is generally going down. The groceries industry is such an industry. If the investor in Tesla also buys shares in groceries, the average value of the portfolio will be better maintained through downturns as well.

When short selling, you can lose unlimited sums

The reason we say ‘unlimited sums’ is because, in theory, the price of the share you have borrowed can rise infinitely before you are able to buy back the number you have borrowed. Changes can happen quickly in the stock market!

The risk involved in short selling is much higher than with traditional equity trading. You should know what you are doing.

With normal equity trading, where you buy a security and bet on a price increase over a longer period, you only risk losing the amount you have actually invested (if the price falls to 0). This is a risk that is easy to relate to.

Short selling is riskier. Read below:

Short selling example

An investor borrows 10,000 shares from DNB Markets. The price per share is NOK 10, but the investor thinks the price will drop substantially in the coming days. He therefore borrows and sells in the market at that day’s price, NOK 10 per share. He receives NOK 100 000.

His ‘bet’ is that the share price will drop to around five kroner in the coming days, he can then buy the same amount for NOK 50 000 before the shares need to be given back.

Suddenly, new information reaches the markets causing the price of the share to rise significantly. Over the course of a couple of hours, the share price rises to NOK 30! The investor is now nervous that the loss will become even greater. He rushes to buy 10,000 shares for NOK 300 000 in order to return the 10,000 shares in time. This is called ‘closing a short position’.

His loss is NOK 200 000. Four times the profit he expected to make.

Who lends the shares?

The lender is often a broker, a bank or large institutional investors.

Loans can also be organised through loan pools to streamline the market through lenders and borrowers.

The lender must be aware that there are some disadvantages to lending his shares. Depending on the conditions of the loan, the lender may be limited in how quickly he can demand to have the loan repaid. In the meantime it is not possible to sell the shares or vote with them. Any dividend will be paid to the holder of the shares, but the lender will be compensated for this. The lender may also have a counterparty risk with borrowers that go bankrupt and cannot give back the securities. To compensate for these disadvantages, the borrower must pay interest to the lender.

DNB Markets lends shares.

Go to the securities lending page here.

What is arbitrage?

Arbitrage is using price differences for the same product or security in different markets. Arbitrage involves selling in a market where the price is high and buying where it is low.

Arbitrage trading normally leads to price differences being settled. When you buy where the price is low and sell where it is high, the price will fall where it is high and rise where it is low. Modern financial theory therefore usually assumes the absences of arbitrage opportunities.

For arbitrage to be possible, one of three conditions must be met:

The same product cannot be traded at the same price in all markets (‘the law of one price’).
Two products with identical cash flow cannot be traded at the same price.
A product with a known future price cannot be traded today at its future price discounted by the risk-free interest rate (or the product has significant storage costs; this condition applies to corn but not for securities).

The transactions must take place at the same time to avoid being exposed to market risk, or the risk that the prices may change in one of the markets before both transactions are complete. In practice, this is only possible for securities and other financial products that can be traded electronically.

DNB Carnegie trading floor in Bjørvika, from the outside.

A safe intermediary between borrower and lender

At DNB Carnegie, we act as intermediaries between institutional clients and funds that want to lend out shares, and investors who want to borrow shares.

Borrowing shares can be relevant for an investor who has bought and sold a certain number of shares but has not received the purchased shares in time to meet their own obligations. We can then ensure that the investor borrows shares in the market to avoid further delays in the settlement chain.

Shorting, arbitrage and hedging

Borrowing may also be necessary when you want to “short”, do an “arbitrage trade” or when “hedging” in relation to share derivative trades.

You will find a more detailed explanation of these strategies below.

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In 2024, DNB Markets was ranked as the best Norwegian brokerage firm for the 10th year running.

Benefits of having DNB Carnegie as your counterpart

DNB acts as a contractual counterpart in all agreements related to loans of securities. This means that the bank acts as the guarantor vis-à-vis the lender(s) and the credit committee-approved borrowers. The advantages for our customers are:

DNB is the contractual counterparty and takes on the counterparty risk
DNB receives security from the borrower in accordance with Finanstilsynet’s (Financial Supervisory Authority of Norway) requirements, with daily follow-up/collection of security
Standard agreements approved by Finanstilsynet are used
DNB administers company events

The contractual basis will consist of a standard agreement pre-approved by . Each loan is normally approved separately and is confirmed with a contract note.

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Profit from your shares without selling them

You can profit from lending, or leasing, your shares. The compensation is calculated as an annual percentage rate based on the market value of the loaned shares from day to day (Mark to Market). All returns that are due to the borrowed security in the lending period must be compensated for. The price is settled on a monthly basis. The loan is normally agreed to run until further notice and the lender can return the securities when he or she has finished using them.

As an owner, you can demand that the borrowed shares be returned within a regular settlement period.

Borrow shares for “shorting”

Shares are often borrowed by investors who are expecting a drop in the price. They want to use the borrowed shares to “short” them. Shorting means selling a number of shares you have borrowed at the price of the day, in the hope that the price will fall before you have to give them back. Should the share price fall in that period, you will profit from the trade. However, if the price goes up, you will lose money. Shorting carries a high risk and is not an investment strategy that is suitable for beginners.

A borrower’s approval is based on a credit assessment made by the bank.

More about risk when trading securities

Borrow shares for shorting

Shorting involves high risk and is recommended only for professional and experienced investors.

Borrowing shares is often done by investors who believe in a price drop. They will use the borrowed shares to "short" them. Shorting means selling a number of shares you have borrowed at today's price, hoping that the price will fall before you have to return them. If the share price falls in the meantime, you will make money on the trade. However, if the price goes up, you will lose money. Shorting involves high risk and is not an investment strategy suitable for beginners.

Approval of borrowers is based on a credit assessment by the bank.

Our prices and terms and conditions

Securities trading is subject to strict rules. We’ve gathered all our terms and conditions onto one page. Here you will find our obligations as an investment firm. In addition, you’ll find information on what you, as a customer, are obliged to familiarise yourself with, and what our services cost.

Prices, terms and conditions

Securities lending

Short trading for retail customers

Borrowing shares – for short selling

Questions and answers about short selling, arbitrage and hedging

A safe intermediary between borrower and lender

Shorting, arbitrage and hedging

Benefits of having DNB Carnegie as your counterpart

title

Profit from your shares without selling them

Borrow shares for “shorting”

Borrow shares for shorting

Our prices and terms and conditions

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