Anyone Use Schwab's Securities Lending Fully Paid (SLFP) Program?

[Mo Money]

Hi everyone. (It's been years since I have posted, though the advice on this forum has made that possible, since I have been just fine financially. I am grateful.)

I recently got an email from my broker, Schwab, offering me a high interest rate if I would agree to loan Schwab commodity-related securities from one of my accounts. The loan would be secured by a trust company holding 102% of the cash value of my loan, adjusted daily. I am aware that my securities, if loaned, will be used to short the commodity in question. I have also researched the risks on Schwab's site and otherwise sniffed around.

Regardless of the above, has anyone else used the Schwab SLFP program? Any thoughts on whether it's worth participating in?

 

[MarieIG]

Nope. I looked into it briefly and decided against it due to tax ramifications (and yes, I do read the terms, conditions and risks).

 

[pb4uski]

While I haven't done it with Schwab, one of my past employers had an extensive securities lending program, in their case for bonds. We viewed it as very safe and it added a little juice.

 

[Mo Money]

That's what I'm thinking; a little added return with Schwab being my borrower, is very tempting. And from what I've read, there's no tax consequences if I use securities from one of my IRAs, which is my plan.

One of the things I have read from other places on the web is that they dangle a hefty rate in front of you, but they may actually borrow for only very short periods. So your comment on it being "a little juice" seems spot on.

 

[Dash man]

I was offered it a few years ago. I read everything I could fine and decided against it. Why? I had decided not to take on anything to make life more complicated.

 

[Texas Proud]

I asked this question before but did not get many replies...


By the time I was thinking about doing it they removed the offer.... heck, they might have removed it quickly as it was a couple of days...


What interest rate did they offer? I did not see any rate when my offer came...

 

[Mo Money]

Interest rate offered was 26.5%, which is variable depending on demand for the security in question. If shorters want it, they pay a lot, and they borrow at 53%. Schwab keeps half, I get half. Again, I don't loan it to the shorter, Schwab does. And Schwab has a trust company hold 102% of the balance they owe me, in cash, adjusted daily.

I have two accounts that qualify. I may test the waters with one account. And as stated earlier, it's unlikely that (a) this rate stays the same; (b) the security is constantly on loan. But if it could juice my return a bit, I might give it a go with one of my two IRA accounts at Schwab.

 

[braumeister]

I did this for a while some years ago at Fidelity. It was a good program, and I certainly made a little money from it. I would imagine Schwab has the same thing.

I finally quit it because I had a stock that the shorts were really going after so they wanted my shares desperately. The problem was that I felt good about its long term prospects and realized that I was only helping the shorts to drive its price down so I was working against myself in the long run.

 

[pb4uski]

Wow that's a lot more lucrative than the bond lending that we did where I worked. Just going from memory, in addition to interest in the bond loaned we got interest from investing the 102% collateral, so if the bond yielded 5% and we could earn 3% on the collateral that would be a cool 8.06%.

 

[Texas Proud]

Interest rate offered was 26.5%, which is variable depending on demand for the security in question. If shorters want it, they pay a lot, and they borrow at 53%. Schwab keeps half, I get half. Again, I don't loan it to the shorter, Schwab does. And Schwab has a trust company hold 102% of the balance they owe me, in cash, adjusted daily.

I have two accounts that qualify. I may test the waters with one account. And as stated earlier, it's unlikely that (a) this rate stays the same; (b) the security is constantly on loan. But if it could juice my return a bit, I might give it a go with one of my two IRA accounts at Schwab.

Yea, at that interest rate I would do it.. but I was not told so I waited too long...


But likely they only have it for a few days so probably not a lot of money anyhow...

 

[marinauser]

If I remember correctly from reading the documentation for the program, the dividends that are paid on the loaned stock do not go to the lender but to whoever has borrowed the stock. Schwab makes the lender whole for the lost dividends but this converts them to ordinary income rather than tax preferred dividends.

 

[youbet]

Hi everyone. (It's been years since I have posted, though the advice on this forum has made that possible, since I have been just fine financially. I am grateful.)

I recently got an email from my broker, Schwab, offering me a high interest rate if I would agree to loan Schwab commodity-related securities from one of my accounts. The loan would be secured by a trust company holding 102% of the cash value of my loan, adjusted daily. I am aware that my securities, if loaned, will be used to short the commodity in question. I have also researched the risks on Schwab's site and otherwise sniffed around.

Regardless of the above, has anyone else used the Schwab SLFP program? Any thoughts on whether it's worth participating in?

Yes. We have 3 SLFP accounts with Schwab. Nothing is in a borrowed status currently, but no issues in the past. It was interesting to watch the process (they do everything) and seeing interest posted daily was a hoot!

Give it a try. You can cancel with no complications at any time. You’ll get a lot of interesting email! ��

 

[youbet]

If I remember correctly from reading the documentation for the program, the dividends that are paid on the loaned stock do not go to the lender but to whoever has borrowed the stock. Schwab makes the lender whole for the lost dividends but this converts them to ordinary income rather than tax preferred dividends.

Yes

 

[youbet]

But likely they only have it for a few days so probably not a lot of money anyhow...

Time periods varied from a few days to several weeks for me.

 

[youbet]

I was offered it a few years ago. I read everything I could fine and decided against it. Why? I had decided not to take on anything to make life more complicated.

It can seem complicated at first. But the complications are all with Schwab. You just watch a stock go in and out of borrowed status, interest rates change and your total interest earned for the period. You do nothing.