Loaning out stock

[Texas Proud]

So, I got an email asking if I would loan out some of my shares in a small account at Fidelity... they said I would get 'interest' on it...

I decided to do it... what a mistake... it seemed that the shares were going in and out almost every day... UPRO gets shorted... who knew... I got tired of getting emails etc. about activity happening in my account... since I do not do much it bothered me... so I called up and stopped it..

I did not get that much money... it was not worth it to me...

Does anybody else lend their shares? What are your thoughts on doing it?

 

[Koolau]

So, I got an email asking if I would loan out some of my shares in a small account at Fidelity... they said I would get 'interest' on it...

I decided to do it... what a mistake... it seemed that the shares were going in and out almost every day... UPRO gets shorted... who knew... I got tired of getting emails etc. about activity happening in my account... since I do not do much it bothered me... so I called up and stopped it..

I did not get that much money... it was not worth it to me...

Does anybody else lend their shares? What are your thoughts on doing it?

Never asked and doubt I'd do it.

 

[Slotracer]

I do loan out shares in an IRA account at Schwab. It is almost transparent to me. I get notices that something is loaned, and notices of the interest rate I am earning. At the peak I was getting around $1,500/year but as I sold off some of the lower-performing and volatile companies in that account the amount earned has gone down. Still, any free money is better than no free money.

 

[wolf]

I do loan out shares in an IRA account at Schwab. It is almost transparent to me. I get notices that something is loaned, and notices of the interest rate I am earning. At the peak I was getting around $1,500/year but as I sold off some of the lower-performing and volatile companies in that account the amount earned has gone down. Still, any free money is better than no free money.

Free money = risk ? Maybe, someone can fully explain. Thanks.

 

[jazz4cash]

I participate in Fidelity’s ‘Fully Paid Securities Lending Program’. Pretty easy and no hassle. Not much benefit for me because I don’t own securities that are in high demand. In fact I was very surprised that all my loans were for mutual funds rather than individual stocks. In 3 yrs my securities have only been loaned out a handful of times and the loans only last a few days. The interest rates vary. Some are pretty high (6%) but it depends on the security. I guess you could setup a portfolio to optimize this program but that’s not for me.

Fidelity Fully Paid Lending Program

I was wondering who else has this offer from Fidelity to allow them to lend your securities within your portfolio? In the Fully Paid Lending Program, Fidelity can borrow fully paid and excess-margin securities1 from your account. In return, you receive collateral in the form of cash and...

www.early-retirement.org

 

[Tadpole]

Never heard of it. I am old and want to fill my brain with delicious food, dog pictures and cat stories. I don't get involved in new investment offers that I would need to study and understand before I joined.

 

[Markola]

I participate in Fidelity’s ‘Fully Paid Securities Lending Program’. Pretty easy and no hassle. Not much benefit for me because I don’t own securities that are in high demand. In fact I was very surprised that all my loans were for mutual funds rather than individual stocks. In 3 yrs my securities have only been loaned out a handful of times and the loans only last a few days. The interest rates vary. Some are pretty high (6%) but it depends on the security. I guess you could setup a portfolio to optimize this program but that’s not for me.

Fidelity Fully Paid Lending Program

I was wondering who else has this offer from Fidelity to allow them to lend your securities within your portfolio? In the Fully Paid Lending Program, Fidelity can borrow fully paid and excess-margin securities1 from your account. In return, you receive collateral in the form of cash and...

www.early-retirement.org

I was considering using this program, so thanks for the insights. I wonder if there’s a way to know which securities are in demand beforehand?

 

[DuluthGA]

I do Fido’s as well. I don’t have much they want so I’m thinking about stopping it. The few nickels are worth the in and out.

 

[Pointby2]

I was invited to participate in E*Trade’s ‘Fully Paid Securities Lending Program’. It's pretty seamless and it's fun to watch stocks go in and out of the program, especially when the stock is going up and you know someone is shorting it. I probably only make $100 a year or less since the stocks they short I typically own small positions in.

 

[Texas Proud]

I had one stock that I was getting 11%... but did not have much invested.... it was in and out almost daily...

And the UPRO ETF was a big one being borrowed... again, lots of in and out...

If they just borrowed it and kept it for a few weeks or even months I would have been fine...

I think I made $11 last month...

 

[Koolau]

I do loan out shares in an IRA account at Schwab. It is almost transparent to me. I get notices that something is loaned, and notices of the interest rate I am earning. At the peak I was getting around $1,500/year but as I sold off some of the lower-performing and volatile companies in that account the amount earned has gone down. Still, any free money is better than no free money.

Free money = risk ? Maybe, someone can fully explain. Thanks.

Can't be "risk free" or they wouldn't pay you for it. Right?

 

[Golden Mean]

Can't be "risk free" or they wouldn't pay you for it. Right?

They are paying for the right to borrow it (usually to short it, I think). I don't see any risk on the owner's side. It's like renting a car you aren't using to someone, but you can't wreck a stock. I hope.

 

[Pointby2]

I always assume they borrow stocks to short them. I have 50 shares of EWY, the ishares MSCI South Korea ETF that are on loan now. However, that ETF is up over 10% YTD. If they are shorting it, then somebody is losing some dough.

 

[Koolau]

They are paying for the right to borrow it (usually to short it, I think). I don't see any risk on the owner's side. It's like renting a car you aren't using to someone, but you can't wreck a stock. I hope.

Are you suggesting there is no way to lose the borrowed stock/bond? Yes, in theory, you would get your money back from the brokerage handling the loaned entity.
but maybe you wanted to KEEP that entity. And of course, brokerages have been known to fail, so there's that.


Not suggesting that it's a big risk but it's not risk free. Again, I would say, you're paid partly because of your risk. Even when you have an FDIC account, you have risk. Risk you could have gotten a better deal on interest someplace else. Risk that the institution fails and you lose your interest and/or your money isn't available to you right away, etc. Small risk, but risk.

 

[Texas Proud]

Well if your are going to go into that much depth on what risks there are then yes... there is risk... but kidding aside there are risks but not that high..

From what I read the big ones are not getting the tax advantage of dividends (not an issue in an IRA), losing voting rights (you do not really own them anymore) and yes, the broker going out of business as they are not insured...

It is interesting that I saw an article of how some ETFs are boosting their return by lending their securities... some made an extra 10bps..

 

[jim584672]

If your shares are lent out the dividends would not go to you, they go to the person who borrowed them. They would pay you and you would lose the "qualified dividend" tax treatment. Also your voting rights might not exist while they are borrowed.

 

[jazz4cash]

If your shares are lent out the dividends would not go to you, they go to the person who borrowed them. They would pay you and you would lose the "qualified dividend" tax treatment. Also your voting rights might not exist while they are

I still get the dividends. Not sure about voting rights

 

[jazz4cash]

So many naysayers here and I don’t have knowledge, energy or interest to dispute so I’ll just say due diligence is always a great idea!

 

[Pointby2]

I still get the dividends. Not sure about voting rights

IIRC, you lose the voting rights, but some brokers will pay the dividends. The actual company dividends go to the party holding the stock.

 

[Texas Proud]

I still get the dividends. Not sure about voting rights

You are getting a payment that equals the dividends but they are not listed as qualified dividends... check it out..

 

[youbet]

If your shares are lent out the dividends would not go to you, they go to the person who borrowed them. They would pay you and you would lose the "qualified dividend" tax treatment. Also your voting rights might not exist while they are borrowed.

At Schwab, the FPSLP gives you the equivalent of dividends as a cash payment. So, yes, you don't directly get dividends but you are given a cash equivalent to keep you whole. If the dividends would have otherwise been qualified if paid directly to you and if your tax bracket is above the 15% qualified dividend rate, that would be a disadvantage, as you stated.

Since Schwab was paying me mid-teens interest, I didn't fret too much over paying the higher tax rate on the dividend equivalent.

I did test the promise that I could sell the stock while it was loaned without any hindrance or delay and that turned out to be correct.

As Texas Proud pointed out, there is potential for a lot of correspondence and reporting to be generated but it is all FYI stuff with no need for action on your part. Once my interest in how the program worked waned, I paid little attention to it.

It was effortless, easy money. But I don't own anything today they ever have a need to borrow.

 

[Texas Proud]

The stock they were shorting the most was QBTS... in and out almost every day... I do not own a lot..

BUT, it went up almost 47% today so I bet the shorts had to sell quickly...

 

[Sunset]

By lending out the stock, it could be shorted and if enough people are doing it, the price will fall. Basically they are paying an investor to bet against the stock the investor hopes will go up.

 

[jim584672]

You get cash-in-lieu of the dividend from the borrower.

 

[Golden Mean]

Are you suggesting there is no way to lose the borrowed stock/bond? Yes, in theory, you would get your money back from the brokerage handling the loaned entity.
but maybe you wanted to KEEP that entity. And of course, brokerages have been known to fail, so there's that.

I think you just changed your argument from "loaning shares adds risk" to "having shares at a brokerage is a risk". There is zero risk to you, if a brokerage loans out your shares. Depending on the terms, there might be some sort of period you are unable to sell.

Not suggesting that it's a big risk but it's not risk free. Again, I would say, you're paid partly because of your risk. Even when you have an FDIC account, you have risk. Risk you could have gotten a better deal on interest someplace else. Risk that the institution fails and you lose your interest and/or your money isn't available to you right away, etc. Small risk, but risk.

I think you are equivocating here. What does FDIC have to do with the discussion of loaning out shares? Or interest rate risk?