@Robert Morse, do you know if the rules permit rehypothecation only in the case of actual margin balances or also when you have levered complex positions. For example, suppose have an account with $100k in cash. Stock ABC is trading at $200 and you buy 10 ABC conversions with strike 100. Now you have no cash, $200k worth of ABC and -$100k in ABC synthetics. I've never been clear on whether shares of ABC are considered fully paid securities under Rule 15c3-3.
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Why with 3Mil in positions are no stocks are being lent
- Thread starter gescob3
- Start date
Per IB it seems that having a covered call on the stock itself shouldn't be an issue.
- 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
- 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
I agree if you have fully paid for shares and you write a covered call you should still get paid when the stock is loaned out. I think the issue arises when the proceeds from the covered call are used to finance the stock purchase.
I think the best way to nail this down would be to find a date where you have positive settled cash (excluding short sale proceeds) for a few days around an ex-div date but received a payment in lieu. Then if you file a ticket asking why you didn't receive a regular dividend, it should get passed to someone knowledgeable enough about these rules.
I think the best way to nail this down would be to find a date where you have positive settled cash (excluding short sale proceeds) for a few days around an ex-div date but received a payment in lieu. Then if you file a ticket asking why you didn't receive a regular dividend, it should get passed to someone knowledgeable enough about these rules.
yes very good observations in this thread. This is one of the "hidden" ways brokers make money off your positions. Longs and Shorts are separated. Any amount borrowed and its up to them what shares they take for themselves. I had a similar situation with a TLRY position when the rates were around 100%. IB took these shares (LOL). You can't really complain? Most brokers are much worse (no lending at all)
Not to change the subject but did anyone else see the free money in the ELAN spinoff by LLY?
Less than half the shares were tendered. More free money for the brokers....
Not to change the subject but did anyone else see the free money in the ELAN spinoff by LLY?
Less than half the shares were tendered. More free money for the brokers....
From IB. I really just want a straight answer where i can see the calculation they are doing.
If you are receiving Payments in Lieu of dividends (PILs) then your stocks are being lent out. You are receiving a payment from the short seller who is borrowing your securities rather from the issuer of the securities.
Brokers have a right to place a lien on margin securities because they have financed the client's purchase of those securities at settlement (seller expects full cash proceeds). As a result, the proceeds from lending securities that are subject to the broker's lien accrue to the broker. The broker's ability to finance the margin loan in this manner is one of the factors that goes into determining the rate they charge on margin loans (i.e., would be higher otherwise).
Only securities which are not subject to a margin lien are available for lending (and sharing of the loan proceeds) via the Yield Enhancement Program. Absent the clients participation in such a program, the broker is not allowed to pledge or lend those "excess" margin securities.
If you are receiving Payments in Lieu of dividends (PILs) then your stocks are being lent out. You are receiving a payment from the short seller who is borrowing your securities rather from the issuer of the securities.
Brokers have a right to place a lien on margin securities because they have financed the client's purchase of those securities at settlement (seller expects full cash proceeds). As a result, the proceeds from lending securities that are subject to the broker's lien accrue to the broker. The broker's ability to finance the margin loan in this manner is one of the factors that goes into determining the rate they charge on margin loans (i.e., would be higher otherwise).
Only securities which are not subject to a margin lien are available for lending (and sharing of the loan proceeds) via the Yield Enhancement Program. Absent the clients participation in such a program, the broker is not allowed to pledge or lend those "excess" margin securities.
I've been trying to get a straight answer from IB. They initially told me that none of my stocks are being lent, because there is no interest. I then ask about the payment in lieu of dividend and they conceded things are being lent because I bought on margin. I just can't get an answer from them on the specifics of how/what is on margin or even how to check.
This appears to be their exact calculation, I'm not sure how selling boxes fits into it. I would think that falls under a covered spread. I wish they let you run a report to see the calculation
For IB-LLC customers, if (settled cash - settled short stock value - OCC naked options margin) < 0, then 140% of this deficit in stock value can be unsegregated and therefore subject to receving a PIL. It is important to note that this only reflects naked options margin, where no relief is provided on covered/spread positions."
For IB-LLC customers, if (settled cash - settled short stock value - OCC naked options margin) < 0, then 140% of this deficit in stock value can be unsegregated and therefore subject to receving a PIL. It is important to note that this only reflects naked options margin, where no relief is provided on covered/spread positions."
I've been trying to get a straight answer from IB. They initially told me that none of my stocks are being lent, because there is no interest. I then ask about the payment in lieu of dividend and they conceded things are being lent because I bought on margin. I just can't get an answer from them on the specifics of how/what is on margin or even how to check.
Securities Lending is a dark market. You're not gonna get the transparency you're looking for from customer service. I deal with short leadings requests on a daily basis in my job. It's likely IB is lending out their clients margined securities ahead of their fully paid securities positions. . . It's preferable to lend out those first as they'll make 100% of the fee instead of 50% split with you.
For the lasts couple months not a single stock in my 3Mil in positions has been lent out. I even hold stock in positions that have a short utilization of well over 50%. I keep on getting told by IB CS chat that it is because there is no interest, but I find that very hard to believe.
/QUOTE]
Short utilization of 50% doesn't mean much. Who is holding the shares short? If they hold the shares short in a broker that doesn't have a securities lending agreement with IB then that may be whether are getting passed over. Maybe IB has stricter mark-to-market collateral rules than other counterparts so short-sellers choose other brokers. Maybe most of the 50% short interest is done using internally sourced shares and they didn't need to approach IB to borrow the shares.
Securities Lending software like Sunguard's "Lending Pit" application can shed "some" light on specific securities, but it's not worth the cost to get it for a retail account.
For IB-LLC customers, if (settled cash - settled short stock value - OCC naked options margin) < 0, then 140% of this deficit in stock value can be unsegregated and therefore subject to receving a PIL. It is important to note that this only reflects naked options margin, where no relief is provided on covered/spread positions."
Sounds like they treat every option as if it were naked and sum up the margin requirements. That would make sense for my portfolio where I have a lot of offsetting options and receive PILs when I have a small positive cash balance. It's only the rare times I have a huge cash balance that I'll see stocks being loaned out.
If I'm interpreting it correctly, a box spread still helps substantially if the strikes are far apart. For example, the March 600/4100 box gets you $350k cash and the margin on the legs is around $30k. Whether the cost of the extra box spreads is worth it would depend on how many hard to borrow names you hold and whether you'd be able to treat the dividends as qualified.
@mskl, Yep, was watching the ELAN/LLY spinoff. I noticed the premium on the LLY March 150 conversions was stable around $0.20 and then jumped close to $1.00 around the end of Feb. Any insight into why, or just randomly higher demand?