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Post by anitya on Feb 26, 2024 20:25:02 GMT
The following is for Forum discussion:
I received this email from Fidelity -
"Earn income by lending securities you already own
With Fidelity’s Fully Paid Lending Program, you can earn monthly income by lending securities that are in demand in the securities lending market. Here’s how it works:
Enroll for free in the Fully Paid Lending Program.
Lend your in-demand securities to Fidelity.
Accrue income daily, and receive payments at the end of each month.
You maintain economic ownership of the securities you lend, and can sell them at any time.
Your loan has no set term and will remain open until you or Fidelity wishes to close it.
Find out if the Fidelity Fully Paid Lending Program is right for you."
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Post by yogibearbull on Feb 26, 2024 20:37:02 GMT
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Post by keppelbay on Feb 26, 2024 20:49:07 GMT
Hi anitya, I started doing this last month. Among my holdings, only RCS has been borrowed thusfar. Borrowing rates have ranged from 8-12%. The interest accrues daily and the rate changes daily depending on supply/demand. Interest is paid early in the following month. Last cycle the borrower returned the shares a couple of days before the ex-date and then borrowed again thereafter, so they did not have to pay the monthly distribution as well as the interest. Net result I get the usual monthly distribution + about 2/3 as much again. No obvious downside to me, except providing fuel to short sellers who think the premium is too high - I agree with them, it is. If they push it down enough, I might buy more for a trade. I've traded in and out of this one a few times in small amounts, overall to good effect.
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Post by chang on Feb 26, 2024 20:56:42 GMT
The following is for Forum discussion: I received this email from Fidelity - "Earn income by lending securities you already own With Fidelity’s Fully Paid Lending Program, you can earn monthly income by lending securities that are in demand in the securities lending market. Here’s how it works: Enroll for free in the Fully Paid Lending Program. Lend your in-demand securities to Fidelity. Accrue income daily, and receive payments at the end of each month. You maintain economic ownership of the securities you lend, and can sell them at any time. Your loan has no set term and will remain open until you or Fidelity wishes to close it. Find out if the Fidelity Fully Paid Lending Program is right for you." This was news to me! I just answered the questions on Fido, and they said I am eligible to enroll. It analyzed my holdings and gave me a monthly projected income. Obvious question: is there any risk?
Fido says: "Shares on loan are not covered under Securities Investor Protection Corporation (SIPC). However, Fidelity provides collateral at a minimum of 100% of the loan value. In any securities lending transaction, counterparty default is a risk."And ... who gets the dividend? Me or the person to whom my shares are lent?
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Post by keppelbay on Feb 26, 2024 21:05:39 GMT
chang, I can confirm that the collateral was posted every day, and the amount adjusted every day as the share price changed. Whether I'd be able to collect it in the case of a problem, I can't know for sure. I assume so, unless things have gone so wrong that this wont be my top prioriy...
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Post by chang on Feb 26, 2024 21:13:22 GMT
chang , I can confirm that the collateral was posted every day, and the amount adjusted every day as the share price changed. Whether I'd be able to collect it in the case of a problem, I can't know for sure. I assume so, unless things have gone so wrong that this wont be my top prioriy... Presumably the chances that Fidelity as the counterparty will default are zero. But IF they did, and you collected the collateral ... would the loss of your shares be treated as a sale? And hence, would you be liable to pay CGs on any profit?
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Post by anitya on Feb 26, 2024 21:16:41 GMT
I find these two sentences meaningful -
"Lend your in-demand securities to Fidelity."
"You maintain economic ownership of the securities you lend, and can sell them at any time."
To avoid recharacterization of qualified dividends, why not use retirement accounts (e.g., IRAs)?
Until I received the email, I did not realize that my account has stocks that are loved by short sellers. I probably will not lend PFE but there are other stocks that pay no dividends I might consider lending them.
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Post by gman57 on Feb 26, 2024 21:21:40 GMT
Oh boy... anyone interested in NTF's... anyone? I have a Bored Ape one originally sold for 24Million ....... yours for $99.99 plus shipping LOL Maybe totally legit since Fidelity is offering it but it sounds funky.
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Post by keppelbay on Feb 26, 2024 21:25:49 GMT
chang , I can confirm that the collateral was posted every day, and the amount adjusted every day as the share price changed. Whether I'd be able to collect it in the case of a problem, I can't know for sure. I assume so, unless things have gone so wrong that this wont be my top prioriy... Presumably the chances that Fidelity as the counterparty will default are zero. But IF they did, and you collected the collateral ... would the loss of your shares be treated as a sale? And hence, would you be liable to pay CGs on any profit? no clue on that one!
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Post by chang on Feb 26, 2024 21:29:08 GMT
I probably will not lend PFE but there are other stocks that pay no dividends I might consider lending them. PFE is apparently not in demand, because the projected interest on lending PFE is virtually zero. (I own it and Fido showed me the projections.) On the other hand, TCAF must be in demand, because I'll earn 3.75% by lending those shares.
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Post by yogibearbull on Feb 26, 2024 21:36:45 GMT
When one signs the margin account agreement, one also gives permission to the broker to lend securities without receiving any compensation. If margin account has some margin loans outstanding, the broker is free to lend without asking; but if there is no margin loan outstanding, brokers isn't supposed to be lending (but some do it anyway).
Only large accounts can demand compensation of these security borrowing/lending activities.
These broker security lending program are sort of an in-between compromise.
If some dividends are marked "payment in lieu of dividends", those are for securities that have been lent. Brokers were getting so many calls about those from uninformed investors, that many brokers have reduced free securities lending from retail accounts, and started these special securities lending programs.
I don't know if one joins the program, whether one can pick and choose what to allow.
But a sure way to prevent lending of securities is to ask the brokers to move those securities to the cash side. Yes, even with margin accounts, there is a margin-side and a cash-side. When you buy a mutual fund, it typically sits for 30 days on the cash-side, and then journaled to the margin-side.
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Post by chang on Feb 26, 2024 21:41:58 GMT
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Post by Capital on Feb 27, 2024 0:35:48 GMT
anitya and chang , I have my Roth IRA and Rollover IRA in the program at Fidelity. I've made a few dollars. I did not put my taxable accounts in the program. Dividends paid on lent stocks are "paid in lieu" payments and can not be qualified dividends. Fidelity puts a very big "L" on your positions page beside a security that is loaned. Interest is paid monthly on or about the 4th of th following month.
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Post by liftlock on Feb 27, 2024 4:25:56 GMT
The following is for Forum discussion: I received this email from Fidelity - "Earn income by lending securities you already own With Fidelity’s Fully Paid Lending Program, you can earn monthly income by lending securities that are in demand in the securities lending market. Here’s how it works: Enroll for free in the Fully Paid Lending Program. Lend your in-demand securities to Fidelity. Accrue income daily, and receive payments at the end of each month. You maintain economic ownership of the securities you lend, and can sell them at any time. Your loan has no set term and will remain open until you or Fidelity wishes to close it. Find out if the Fidelity Fully Paid Lending Program is right for you." I wonder what the potential upside might be on lending the securities I own to the short sellers. I would be curious know what the estimated yield might be.
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Post by chang on Feb 27, 2024 6:16:20 GMT
liftlock Follow the next steps and Fido will tell you the estimated interest payments for each eligible security, before you confirm (there are several more steps after that - you don’t have to continue).
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Post by keppelbay on Feb 27, 2024 8:17:53 GMT
anitya and chang , I have my Roth IRA and Rollover IRA in the program at Fidelity. I've made a few dollars. I did not put my taxable accounts in the program. Dividends paid on lent stocks are "paid in lieu" payments and can not be qualified dividends. Fidelity puts a very big "L" on your positions page beside a security that is loaned. Interest is paid monthly on or about the 4th of th following month. if you want to use this in your taxable acct, you can choose to exclude the securites that pay qualified dividends.
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Post by keppelbay on Feb 27, 2024 8:25:46 GMT
I did a bit of arithmetic on yesterday's accrual to see how much Fidelity was taking off the top. 98.6% of the calculated daily yield was posted as accrual in my account. Fidelity's share of the interest payment appears to be <1.5%. I find this reasonable. No way to know if the interest rate they show me is what they charge the borrower - there might be a fee on that end as well.
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Post by archer on Feb 27, 2024 16:21:33 GMT
How does this actually work? The market is about supply and demand. Now Fidelity is borrowing peoples holdings and selling what exactly? Shares of stocks/funds in this program have now doubled. For those who buy these, where does the money come from when they sell them? I guess it is similar to banks loaning money they don't actually have stored in a vault.
Fido offers to borrow only my shares of QLD for about .24%, $8/month. Not worth the bother at this time. Chang's 3.75% looks pretty good though.
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Post by keppelbay on Feb 27, 2024 17:06:36 GMT
How does this actually work?... Fidelity borrows your shares and lends them to a 3rd party who wants to sell them short. The end borrower is betting that the price will drop and that they can buy the shares back cheaper to return them to you, pocketing the difference.
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Post by anitya on Feb 27, 2024 21:32:00 GMT
After signing up, the final notification is the following:
"Please notify Fidelity (fullypaidlending@fmr.com) if there are any particular holdings (e.g., your company stock) that are not eligible for lending or you would otherwise like to exclude from lending.
View shares on loan, current rates, market values, and collateral from your Positions page. A trade confirm will be sent to you whenever there's any lending activity on your account.
On a monthly basis, your lending income will be credited to your account on the evening of the third business day of the following month. You'll receive a separate fully paid lending statement, which is also available under Account Records.
All eligible securities in your account (now or in the future) will be considered for borrowing based on demand in the lending market. Enrollment in the program does not guarantee that any securities will be borrowed."
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Post by keppelbay on Mar 8, 2024 8:08:19 GMT
The interest rate for lending my RCS shares has dropped slowly but steadily from about 11% to the mid 8's. It is probably not due to all you BB forum members getting into the boat... (I'm probably the only one holding RCS here.) If the trend continues, I will have to decide at some point whether the extra income is worth it. So far yes: I got 170% of the normal monthly distribution for February. The difference between the share price at borrowing and the covering price on the day the shares were returned was a bit less than 3x the interest they paid me (I don't know if they also pay Fidelity for mediating the interaction). So the borrowers are making a bit, but probably not enough to make the risk worthwhile. Will they borrow them again in the hope of a collapse of the RCS premium to NAV? I'll know soon.
added by edit: For January, the borrower probably lost money because the shares cost more on the return date than on the borrow date. Note: I'm not considering intraday price variation, so the borrower might possibly be making a bit more tham I'm calculating.
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Post by chang on Mar 8, 2024 9:11:16 GMT
8-12% is amazing. Numbers like that (should) change the picture on owning FI.
So far only my DFIV was lent out - at around 0.25% (and only for a couple of days before it was returned) - netting me a whopping $2.47 in interest.
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Post by anitya on Mar 12, 2024 2:14:49 GMT
Just a quick update.
While singing up for this service is online, if you ever want to discontinue participating in the service, you have to call Fidelity customer service and you may be asked to call back during the specific department's working hours.
Today, I asked Fidelity to discontinue my IRAs from participating in the service. Reason: First, I was not able to make sense of a lot of the transaction history for the account. Second, I had some transactions cancelled mysteriously a day after the buy trade posted and the Reps were not able to figure out why and how that happened. My fidelity IRA has only one security that participates and so I chose simplicity over making extra income. For now, I let my taxable account participate but I am pretty close to calling it quits for that account as well, which happen to have a couple of securities that are getting paid interest from lending at 15%. But I pretend the value of my time is $200 per hour in making cost benefit analysis of extra work such as chasing brokerage representatives or fixing issues in brokerage accounts.
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Post by chang on Mar 12, 2024 8:59:26 GMT
My first and only experience with securities lending was painless. I could see the position separated into two parts, one with a big “L” and showing details of the loan. I saw some extra “Activity” relating to the loan, collateral, etc. that I didn’t pay much attention to. I’m not sure when the interest is actually paid, but I assume it’s probably at the end of the month.
Sadly the interest rate I got was very low, but for the moment I’m keeping it open in all my accounts (but stocks and ETFs are only in taxable; IRAs contain only OEFs).
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Post by keppelbay on Mar 12, 2024 9:07:43 GMT
I’m not sure when the interest is actually paid, but I assume it’s probably at the end of the month. Interest is paid a few days into the following month (Fido say 4 days, but in practice it has been 3 work days). March 5th for Feb and Feb 5th for Jan.
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Post by keppelbay on Mar 14, 2024 15:15:13 GMT
The borrower is back after the ex-date, but El-Cheapo only took 1/3 of my RCS shares this time, at 7% interest. Won't be as good a month. But it still adds to the yield, so I'll take it.
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Post by chang on Mar 14, 2024 15:27:24 GMT
keppelbay You seem to have the juicy ones. Someone borrowed half my TCAF but the rate is only 2.625%.
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Post by keppelbay on Mar 20, 2024 12:37:26 GMT
Not so juicy this month. Borrower returned the shares after a few days.
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Post by anitya on Apr 11, 2024 18:36:57 GMT
TD (and Schwab) shares only 50% of the income with clients from securities lending program. Fidelity shares 60%. At TD (and Schwab?), "Margin accounts are not eligible for this program at this time." At Fidelity there is no such restriction. Daily activity under this program can be found at, My Accounts> Statements > Fully Paid That is a bit cumbersome than at Fidelity where the lent security is designated with an L in your positions page. Additional information from TD (probably same info as at all brokerages), - Shares loaned are not protected by the SIPC; however, the shares are fully secured by collateral held at a third-party custodian
You forfeit your right to participate in corporate actions, such as proxy votes, tender offers, and voluntary actions Rather than dividends, you receive substitute payments in the same amount, which are taxed differently from dividends- Typically, positions must be more than $10,000 to be considered for lending
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Post by anitya on Apr 11, 2024 20:32:51 GMT
It is surprising that short sellers do not want to borrow my BA shares.
Being enrolled in this program gives me a sense of which of my securities are in high demand from short sellers and how that demand is changing over time. e.g., One of my security was paying me 15% (that is my portion of the 25% the borrower is charged) last month but now it is paying me less at 11%.
I am surprised you can get paid 1,000s per month for owning companies you would have owned anyway and we did not know about this program until a couple of months ago. We do not know the many ways brokerages make money.
At TD (and Schwab?) Margin accounts are not eligible for this program. Given so many investors have majority of their investments in taxable accounts which are generally margin enabled, these brokerages continue to keep all the earnings from lending securities from those accounts to themselves.
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