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]

Looks interesting. Will also check it out.

+1

 

[rayvt]

... 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]

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]

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]

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]

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.

 

[misanman]

I received my documents today and they only reference a single security that I own - ARKG. I take it to mean that ARKG is the only security of interest, but it's hard to know for sure. Also, it seems to me that it might be best to use securities in a Roth IRA in order to avoid taxes on the income. I haven't decided whether or not to submit the paperwork but might try it more or less just to see how it works.

 

[cho oyu]

It does appear that additional tax consequences for lending vs receiving direct dividends are being (partially or more than fully, depending on marginal tax bracket) handled by Fidelity. The FAQ for the program states:



"To help offset the potential tax burden associated with the receipt of cash-in-lieu payments in place of qualified dividends (as defined in the Jobs and Growth Tax Relief Reconciliation Act of 2003), Fidelity will credit participating taxable accounts with an additional credit adjustment equal to 26.98% of the qualified portion of the distribution.3 This adjustment will occur annually after all reclassification information is made available. When factoring in credit adjustments, Fidelity’s total cost for borrowing from taxable accounts over a record date will be greater than the cost of borrowing from tax indifferent lenders."

 

[cho oyu]

I received my documents today and they only reference a single security that I own - ARKG. I take it to mean that ARKG is the only security of interest, but it's hard to know for sure. Also, it seems to me that it might be best to use securities in a Roth IRA in order to avoid taxes on the income. I haven't decided whether or not to submit the paperwork but might try it more or less just to see how it works.

If you recall, or if you don't mind looking, which document were the securities of interest noted? I may have missed a section or perhaps don't hold anything that is relevant.



I received 3 documents: MSLA (master services lending agreement), proof of Fidelity counterparty collateral at various banks, and a fully paid lending FAQ.

 

[misanman]

No trouble at all. I received the documents as email attachments. The body of the email contained the following text right after the introductory paragraph:

"Currently, the following positions and rates could apply (subject to change based on market conditions)

Symbol Rate
ARKG 2.125%"

I could conclude that someone (or some thing) looked at my holdings and identified ARKG as a security of interest. Are there others? Apparently not for me, but maybe that would change due to "market conditions".

 

[cho oyu]

No trouble at all. I received the documents as email attachments. The body of the email contained the following text right after the introductory paragraph:

"Currently, the following positions and rates could apply (subject to change based on market conditions)

Symbol Rate
ARKG 2.125%"

I could conclude that someone (or some thing) looked at my holdings and identified ARKG as a security of interest. Are there others? Apparently not for me, but maybe that would change due to "market conditions".

Thank you !

Apparently my portfolio is too boring and bland, as there is no reference in the information e-mail on any lending interest. That's a shame, as any additional return within tax-advantaged accounts would be very much appreciated.