Screenshot from IB - margin interest on shorts (longs?)

[traider]

If you have a margin account, then I believe your shares are always being loaned to other members of the broker whether you like it or not and you get nothing for that. Under IB's stock yield enhancement program, your shares are loaned out to people outside if IB in exchange for some cash collateral and interest. From what I have heard and personal experience, it works out well except that in a taxable account, you might be paid payment in lieu instead of an actual dividend which has negative tax consequences for long-term holdings. Also, because I generally hold S&P500 stocks, the yield wasn't much. Probably a lot more if you hold more speculative assets that are hard to borrow.

Doesn't that mean that if you have a margin account, you should always enable share lending?

 

[HobbyTrading]

Doesn't that mean that if you have a margin account, you should always enable share lending?

I have a margin account and did not enable that. My understanding is that you can't offload a position quickly if those shares happened to be lent out. IB would then need time to find shares to put back in your account before you can close (or reduce) that position.

 

[def]

I have a margin account and did not enable that. My understanding is that you can't offload a position quickly if those shares happened to be lent out. IB would then need time to find shares to put back in your account before you can close (or reduce) that position.

Not correct, if your shares are lent out, you can share and trade as you please:

https://ibkr.info/node/1839

- Clients maintain full control of loaned shares with no impairment as to:

* Market exposure ( i.e., will continue to recognize profit or loss consistent with stock price move);

* The ability to sell at any time without prior notice;

* Hedges (e.g., covered calls, protective puts);

* The representation of holdings in statements and the trading platform; and

* Cost basis

 

[HobbyTrading]

@def Thank you for correcting my misunderstanding.

 

[def]

@def Thank you for correcting my misunderstanding.

No problem, there of course is no guarantee of shares being lent out but the hard to borrow naturally have higher demand.

 

[traider]

No problem, there of course is no guarantee of shares being lent out but the hard to borrow naturally have higher demand.

What are the downsides to share lending? There must be some right? Otherwise everyone should default to share lending.
Is it the small risk that when broker goes under lent shares will be in trouble?

 

[def]

What are the downsides to share lending? There must be some right? Otherwise everyone should default to share lending.
Is it the small risk that when broker goes under lent shares will be in trouble?

The link I posted explains the caveats:
SPECIAL CONSIDERATIONS

- 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 restrictions;

- The interest rate that IBKR pays for any given loan is subject to supply and demand considerations that are outside the control of IBKR and which are susceptible to change from one day to another without advance notice or limit as to the magnitude of change. The interest paid to participants will reflect such changes;

- Proxy voting rights on loaned shares are forfeited (rights go to borrower);

- Loaned shares are typically used to facilitate short sales and such transactions may affect the value of shares.

 

[zdreg]

I think that you have to change a setting such that you allow IB to take your shares and lend out to others. The default setting is that the shares you own are not being lent out.

The situation you describe sounds doubtful.

Margin agreements usually have clauses that inform you shares can be loaned out. It is not up the customer. At some firms which offer cash accounts with fully paid for stock the broker has to have a specific agreement to loan out shares. You might be agreeable if you have hard to borrow stock in a cash account and can receive a fee for loaning out your stock. Then unlike IB very few firms will pay anything to retail investors.

 

[eastern_warrior]

The situation you describe sounds doubtful.

Margin agreements usually have clauses that inform you shares can be loaned out. It is not up the customer. As to cash accounts with fully paid for stock the broker has to have a specific agreement to loan out shares. You might be agreeable if you have hard to borrow stock in a cash account and can receive a fee for loaning out your stock.

if your shares are fully paid in a margin account they can not be lent out unless you agree. If you use margin a broker can rehypothecate up to 140% of the loan.

 

[zdreg]

if your shares are fully paid in a margin account they can not be lent out unless you agree. If you use margin a broker can rehypothecate up to 140% of the loan.

I think you are wrong on the facts.