Fidelity Securities Lending Program

[jazz4cash]

I can't find/recall the original thread where this program was discussed.
I signed up at the suggestion of someone here. That was maybe 10 months ago and I have never received any actvity....until now. I had a few stocks that I thought would be attractive for this program like JNJ, D, BMY, etc. Now I get a hit and see a bunch of undecipherable transactions on my account activity page. There's about 12 transactions....like 4 sets of three. They are collateral adjustment notices, security delivery notices, and journal entries. The security is ONEQ, a Nasdaq index ETF. I can't find anywhere what kind of interest will be paid for this activity, but the borrower is Wells Fargo ( I think). I'll be calling my Fido Advisor and expect he will forward me to someone that is an expert with this program.

 

[jazz4cash]

Wells Fargo returned the borrowed shares to my account after one day! There are now about 16 transactions for a one day loan. Curious the shares were returned just in time for the quarterly dividend so that further confuses things. I won't see an interest payment until 3rd business day of the following month. The young reps I spoke with at Fidelity were not fluent in this program.

 

[euro]

Can you elaborate a little bit as to what it is and what it is supposed to do?

 

[njhowie]

Sounds like Wells Fargo knows how to game the system. If they do, certainly other participants know as well. Seems it may be more of a cheap way for the institutional participants to borrow shares at the expense of the small fry.

 

[copyright1997reloaded]

Things to note:
1) Your qualified dividend may no longer be qualified (no longer meets holding period definition and you would receive "cash-in-lieu" which has different tax treatment.
2) Shares on loan are not covered by SIPC protection. They (Fidelity) have a note on this: "However, Fidelity provides collateral at a minimum of 100% of the loan value. In any securities lending transaction, counterparty default is a risk."
3) Under the securities lending agreement, you relinquish your ability to exercise voting rights.

I personally would be reluctant to do this. One of the positives of having securities in a cash account (vs. margin) is to prevent securities lending activities.

 

[jazz4cash]

Can you elaborate a little bit as to what it is and what it is supposed to do?

It’s an agreement to permit the broker to loan your securities to other parties as required if a party wishes to take a short position, for example. The borrowing party puts up collateral for the loan a pays a fee which includes interest to the security owner and something for the broker. The examples I showed were in the 2-3% range IIRC.

The way things are playing out, it does not seem to be beneficial and I will likely withdraw from the program.

 

[JOBO]

Fidelity reached out to me last year to see if I was interested in participating in their FPL program.
https://www.fidelity.com/trading/fully-paid-lending

Despite there being two physical offices in my immediate area the only Fidelity rep conversant in FPL was 3 time zones away.

After several email and phone exchanges with him I decided the complexity and uncertainty weren't worth the reward.


Am retired and spending all the dividends from taxable.
The certainty of the cashflow and tax status are more important to me.
My "consolidated" statements are already busy enough that I simply file them and download the transactions into a spreadsheet instead.

 

[jazz4cash]

That’s great input JOBO. Limited knowledge of the program matches my experience. I found the confirmation email from when I signed up one year ago. I’m waiting to see what the payout is on the 3rd business day of the following month. I may contact the email sender if I have questions.

 

[jazz4cash]

12.25% Interest Rate

I just reviewed my monthly report for the Fidelity Fully Paid Lending Program. The interest rate is 12.25% per year. This is great but the borrower (Wells Fargo) returned the loan proceeds in one day so the interest paid is trivial and this is the only time my securities were ever borrowed in the year since I signed up. There are probably some unidentified downsides to this program. I have not figured out how i am compensated for interest while the securities were out on loan. I'll give it some more thought before I decide if I should stick with the program.....maybe if I owned meme stocks or TSLA!

 

[Bryan Barnfellow]

It’s an agreement to permit the broker to loan your securities to other parties as required if a party wishes to take a short position, for example. The borrowing party puts up collateral for the loan a pays a fee which includes interest to the security owner and something for the broker. The examples I showed were in the 2-3% range IIRC.

The way things are playing out, it does not seem to be beneficial and I will likely withdraw from the program.

Sounds like it is just converting to a margin account, no?

-BB

 

[jazz4cash]

Sounds like it is just converting to a margin account, no?



-BB

No. A margin account AFAIK allows you to pledge your owned securities as collateral to borrow money. You are the borrower and pay a interest to the custodian. In this account I am the lender and receive interest payments from the borrower.

 

[Bryan Barnfellow]

In my standard Schwab brokerage margin account I believe that I am also subject to others borrowing my shares for shorting via the Schwab brokerage. A few times over the years this has happened and was reflected in my account details. Once, maybe twice, I received a "cash in lieu of dividend" action.

Schwab needs permission to borrow my shares and I signed a margin account agreement that included a clause to that effect. However, if I remember correctly, they are limited in the value of the shares they borrow from me by the amount of margin debt I currently owe. I used margin in the past; but not for the last 10 years or so. I haven't seen any lending from account during this time.

-BB