Lending of Money and Shares Through the Riporti Market of the Milan Stock Exchange

Abstract

Riporti contracts defer obligations to deliver or pay for shares from one monthly clearing to the next. Through what amount to double loans of lire against shares, the riporti market makes possible short selling and the buying of shares on credit. About 1,000 billion lire is lent monthly to long speculators by banks, brokers, or short sellers, through a dealer network and a public auction on the Exchange floor. Detailed data on one month's transactions reveal the degree of specialization and concentration among banks and brokers. Regressions with the auction's rates for six years reveal the circumstances under which short sellers pay a premium to borrow shares.