Fully Paid Lending Program by Fidelity

[Lazyfabs]

has anyone participated in this program or looked into it?

pros/cons

thanks

https://www.fidelity.com/trading/fully-paid-lending

[jazz4cash]

Never heard of this before even though I am on Fido’s site everyday. I answered 3 questions and it says I am eligible but probably not really since nearly all my securities are held in an IRA.

[Retireby45ish]

Interesting. Probably only applicable if you own a heavily shorted security like TSLA but seems to be free money if so. I’ll check into the rates and report back…

[Scuba]

Looks interesting. Will also check it out.

[splitwdw]

This was mentioned in another thread. I'm sure someone will be along with a link to that thread.

[chassis]

I answered the questionnaire, and I am eligible. I didn't see a calculator or estimate of compensation potential under the program.

[Sunset]

You lose the tax benefit of dividends. So will be taxed higher on the money.

From far down their page:

"Cash distributions paid on securities borrowed over the dividend record date are credited as a "cash-in-lieu" payment, which may have a different tax treatment than the actual dividend from the issuer."

[DrRoy]

Quote:

Looks interesting. Will also check it out.

+1

[rayvt]

Quote:

Originally Posted by jazz4cash ... but probably not really since nearly all my securities are held in an IRA.

Nope, you can do it in an IRA, too. I have been on the FPLP with my IRA at Etrade for several years.

Don't know how FIDO does it, but Etrade replaces your borrowed stock with 100% cash collateral. They split the "borrow fee" 50/50 with you. If the borrower was charged 5%, you get 2.5%.

[mrfeh]

Looked into this over the last couple days, and decided it's not worth the hassle (for me). If you have significant holdings in individual stocks that tend to get shorted, it might be worth it, but we don't hold such equities.

[Retireby45ish]

Quote:

Originally Posted by mrfeh Looked into this over the last couple days, and decided it's not worth the hassle (for me). If you have significant holdings in individual stocks that tend to get shorted, it might be worth it, but we don't hold such equities.

Same. Totally agree with this assessment.

[jazz4cash]

I’m leaning towards giving it a shot. I really can’t tell what level of income I might receive based on short interest etc in the stocks I hold. I might call my free advisor at Fido to get some input.

[mrfeh]

Quote:

Originally Posted by jazz4cash I’m leaning towards giving it a shot. I really can’t tell what level of income I might receive based on short interest etc in the stocks I hold. I might call my free advisor at Fido to get some input.

Please keep us apprised, if you do. From what I've read, boglehead portfolios (index mutual funds) don't work well in such a program.

[jazz4cash]

My understanding is that it’s for individual stocks only, so no mutual funds (index or otherwise) are eligible. My portfolio is ~10% individual stocks. I hold them for various reasons but mostly it helps me keep my head in the game. I respect the BH philosophy but I don’t want to get too passive.

[chassis]

Is the compensation the stock lending program in the ballpark of 30 day LIBOR? If the Fidelity security lending program delivers interest in the amount of 0.09% annualized, I am not interested.

[jazz4cash]

Quote:

Originally Posted by chassis Is the compensation the stock lending program in the ballpark of 30 day LIBOR? If the Fidelity security lending program delivers interest in the amount of 0.09% annualized, I am not interested.

No, it’s not like that. See post #9 above.

[chassis]

Quote:

Originally Posted by jazz4cash No, it’s not like that. See post #9 above.

@jazz4cash Thanks. What is the Fidelity borrow fee? Can you post a link? I looked on Fidelity's site and didn't see it.

[jazz4cash]

I don’t know. In the example posted in the program summary the rates ranged from 2 to 25%! Not sure if that figure is the actuate rate or just the owner’s cut. It says:

“The lending interest rates paid to you by Fidelity are based on the relative value of each security in the lending market. Several factors, including borrowing demand, the overall lendable supply of the security, short-selling and hedging interest, and general market conditions can impact the lending rate.”

I will probably go forward but I’m in no rush. I will post any updates when I take action.

[chassis]

Just received the plan enrollment docs.

Lending fees given in a pro forma example ranged from 2% to 25%. Let’s say the expected average lending fee is 2% for discussion purposes.

If Fidelity borrowed my entire portfolio, I would receive 2% annualized, in addition to any market return I would have received had I not loaned the shares.

It doesn’t seem very juicy, does it?

What is my downside?

What is Fidelity’s upside? Is it so that they can trade with shares, for example by selling them short or placing options trades?

[jazz4cash]

To each his own. 2% is pretty juicy to me considering what I’m getting now. 2% was the minimum so maybe my stocks are worth more. No way to tell without giving it a shot.