IB's Yield Enhancement Program
- Thread starter AAAintheBeltway
- Start date
When you sell stock short, you are effectively borrowing. It's not cash, as is the case when purchasing stock on margin, but shares, and the lender of those shares requires that the transaction be fully collateralized to secure their return at the conclusion of the loan. The loan collateral is in the form of cash, with the cash originating from the proceeds of the short sale. These cash proceeds are therefore not available to support the purchase of other securities and are subtracted from your net cash balance to determine what amount, if any, you are borrowing on your long shares.
For example, assume you have a Reg T account with net liquidating equity of $5,500 comprised of the following: net long cash of $5,500, long stock of $10,000 and short stock of $10,000. Note that you'd need to have equity of at least $5,500 to meet the exchange maintenance margin requirement of 30% of the short stock market value and 25% of the long stock market value. In determining the amount of long stock the broker has a lien on for hypothecation purposes, you would back out the market value of the short stock from your net cash balance. If the result is a credit, then you have not borrowed money to purchase those long shares and they must be segregated. If, it's a debit as it is in this example ($5,500 - $10,000 = $4,500), then the broker has a lien on 140% of that debit balance ($4,500 * 1.4 = $6,300) and has the right to loan or pledge shares up to that amount. The remaining long stock balance ($10,000 - $6,300 = $3,700) is not available for the broker to loan or pledge and must be segregated unless you enter into a special agreement to allow this. IB's Yield Enhancement Program is one such example.
I've been signed up for IB's yield enhancement program for a few months now, and I would seem that they never lend out my really expensive to borrow shares, some of which they are charging as much as 80% interest for.
I would assume that they would prefer not to lend out shares where they have to split the interest, making my shares only available as a last resort. So maybe this explains why my shares are never being lent.
However, IB also offers an "AQS marketplace," where apparently you can manually lend our your shares at an interest rate you manually set (and I think you keep the entire borrow cost). Wondering if anyone's given this thing a shot and how it works.
I would assume that they would prefer not to lend out shares where they have to split the interest, making my shares only available as a last resort. So maybe this explains why my shares are never being lent.
However, IB also offers an "AQS marketplace," where apparently you can manually lend our your shares at an interest rate you manually set (and I think you keep the entire borrow cost). Wondering if anyone's given this thing a shot and how it works.
The 80% stock is ANGI, which last I checked IB was charging 80% for. There are probably a decent amount of people looking to short this name.
So back to this AQS system, does it mean if I go to the market and want to lend my shares for 30%, I will be able to find someone to borrow them relatively easily? Is it a very tedious and manual process where I have to manually lend my shares out again and stipulate the rate evertime someone returns the shares? Someone have experience with AQS care to comment?
So back to this AQS system, does it mean if I go to the market and want to lend my shares for 30%, I will be able to find someone to borrow them relatively easily? Is it a very tedious and manual process where I have to manually lend my shares out again and stipulate the rate evertime someone returns the shares? Someone have experience with AQS care to comment?
When I took a look at the AQS marketplace a year ago there was very little volume. With a stock the size of ANGI you probably won't be able to find anyone to lend to but I could be wrong.
Uh...many stocks are > 80% to borrow at IB. And yes, high borrow rates are a reflection of high demand, not lack of demand. Kind of shocking not to understand this.