One thing that I think that you are missing is that VTSMX has no idea if you have a margin loan or not. I can't think of a reason why they would care.dbr wrote:Isn't it true that a mutual fund such as VTSMX might loan shares of the stocks held by the fund even though I, as an owner of shares of VTSMX and not being in a margin account, would not see my shares of VTSMX loaned. That is what I am referring to.
The rules of who can lend out shares are different, the lending out process is the same.
As a individual, if you had a margin loan your broker could lend out your VTSMX shares. Why anyone would want to borrow them I don't know, but you could. There is a thicket or rules and regulations to protect poor unsophisticated investors.
As a institution, VTSMX is not bound by those rules. They can just lend out the shares.