Demand to borrow UK stocks to sell short ramped up after Britain's decision to leave the European Union and remains elevated despite the broader market recovery, IHS Markit said on Wednesday.
Revenues made from lending British securities is set to rise 27 percent in 2016, IHS Markit said, in the best year for the industry globally since 2012.
"Uncertainty surrounding Brexit has been the main catalyst driving the increased UK revenues as short selling in UK equities has surged to a multi-year high since the referendum vote back in June," Markit analyst Simon Colvin said in a note.
"These dynamics show no signs of slowing down heading into 2017."
The FTSE 100 .FTSE and FTSE 250 .FTMC are both up about a fifth since the lows after the referendum.
Negotiations around the conditions for the UK's eventual exit are expected to kick-off in earnest next year and remain a source of risk for the domestic economy and corporate profits.
According to IHS Markit data, the current average demand to borrow constituents of the FTSE 350 .FTLC index stands at 2.3 percent of shares outstanding, the highest in over two years.
It said domestic stocks on the FTSE 250 were those most targeted by short sellers.
The rise of over $35 million (28 million pounds) in UK securities lending revenues contrasts with a sharp drop-off in Germany, where lending revenues have contracted 62 percent.
A change in German tax laws has made stock borrowing and lending less lucrative.
(Reporting by Danilo Masoni, Editing by Vikram Subhedar)