IB users who lend out their long shares..

Discussion in 'Interactive Brokers' started by IBRex&me user, Jan 6, 2020.

  1. Sig


    Does it actually ever specifically say the cash is deposited in your account? If it was, you'd then get to buy something with at least the 2% right? Again, the IB rep went to great lengths to avoid answering that question, so that pretty much never means the answer is favorable to us. In any event, you do lose your SIPC protection regardless, the question is if you get FDIC protection.
    #11     Jan 6, 2020
  2. ajacobson


    "I think the stock yield for loaned shares is completely different from commissions. What do stock and ETF borrowing rates have to do with transaction costs?"

    Revenue from stock loan as part of the stream to cover commissions
    #12     Jan 6, 2020
  3. def

    def Sponsor

    Loaned shares may not be protected by SIPC, however, the cash collateral received for the loaned securities is segregated within the 15c3-3 Reserve Account and therefore subject to the same investment restriction

    If you have GC stocks (very easy to borrow), the odds of lending out your stocks drops much lower but if you happen to own a stock in demand, there is potential for excellent yield. So while not everyone will be purchasing cases of whiskey from SYEP, I can attest there are many accounts benefiting very nicely from this program. Doesn't cost anything to enroll, little downside and you can always drop out if you wish (we don't allow flipping in and out of the program for what I hope most will understand are obvious reasons).

    As a side note, we are in the process of rolling SYEP out in Hong Kong where stock loan can be very interesting. Some stocks can move from GC to quite expensive 1-5% with little notice and we expect this plan to be a huge win/win for those of our clients trading HK shares.
    #13     Jan 6, 2020
    MoreLeverage and tonyf like this.
  4. ET180


    I don't know, but just interpreting from the quote:

    "Customers who participate in the program will receive cash collateral..."

    How would a customer receive something if it's not in their account? If I had to guess, then the extra 2% collateral seems to imply that buying power is increased slightly due to the loan, but not sure how that is handled. This is similar to how, at least with RegT, if the net value of your stocks increase, but your cash balance stays the same, your buying power increases due to the increased value of the stocks. Portfolio margin is more complicated.

    So if it's not possible to loan shares out and get PIL instead of dividend (which would result in less favorable tax treatment), what is the downside?

    I don't think the brokerage can legally loan member shares out to 3rd parties without the customer agreeing. Otherwise, they would not have to entice the customer by sharing revenue from that activity.
    #14     Jan 7, 2020
  5. ajacobson


    Pretty much every margin account has a rehypothecation clause.
    #15     Jan 7, 2020
    MoreLeverage and Sig like this.
  6. Sig


    That's in the fine print of your margin agreement. When you borrow using margin you agree to allow them to lend out the shares securing the margin loan.
    #16     Jan 7, 2020
    MoreLeverage likes this.
  7. Sig


    So this is the same non-answer that you provide the last time. Simple question:
    Is the cash collateral received for the loaned securities deposited to the customers account and protected by FDIC in the same manner as any other cash in their account or not? Simple yes or no answer would be great!
    #17     Jan 7, 2020
  8. ET180


    Even to 3rd parties? Then why does one have to opt-in to 3rd party lending and why would they bother sharing the loan revenue with their customers if they are allowed to loan out the customer's shares anyway?
    #18     Jan 7, 2020
  9. Sig


    They can only lend your shares when you're using margin. Otherwise they have to ask your permission (which usually requires they share a little of that cash cow with you). You better believe they lend out every last share they can from their margin customers before they come to you though!
    #19     Jan 7, 2020
    MoreLeverage likes this.
  10. ET180


    Ok, that makes sense. When you are using margin, you technically don't own your entire portfolio anyway. Although, if I am only at, say 115% exposure (where 100% would be fully-long, but no leverage), are they only allowed to lend out 15% of my portfolio or can they loan out the entire portfolio?
    Last edited: Jan 7, 2020
    #20     Jan 7, 2020