## Stock Yield Enhancement Program FAQs

What is the purpose of the Stock Yield Enhancement Program?
The Stock Yield Enhancement program provides customers with the opportunity to earn additional income on securities positions which would otherwise be segregated (i.e., fully-paid and excess margin securities) by permitting IB to lend out those securities to third parties. Customers who participate in the program will receive cash collateral to secure the return of the stock loan at its termination as well as interest on the cash collateral provided by the borrower for any day the loan exists.

What are fully-paid and excess margin securities?
Fully-paid securities are securities in a customer’s account that have been completely paid for. Excess margin securities are securities that have not been completely paid for, but whose market value exceeds 140% of the customer’s margin debit balance.

How is the income received by a customer on any given Stock Yield Enhancement Program loan transaction determined?
The income which a customer receives in exchange for shares lent depend upon loan rates established in the over-the-counter securities lending market. These rates can vary significantly not only by the particular security loaned but also by the loan date. In general, IB pays interest to participants on their cash collateral at a rate that approximates 50% of the amounts earned by IB for lending the shares. . For example, assume IB earns 15% annualized income from lending shares with a value of \$10,000 and it posts \$10,000 cash collateral to a participant’s account. The normal daily interest rate IB would pay to a participant on the cash collateral would be \$2.08

How is the amount of cash collateral for a given loan determined?
The cash collateral underlying the security loan and used for determining interest payments is determined using standard industry convention whereby the closing price of the stock is multiplied by 102% and then rounded up to the nearest whole dollar. For example, a loan of 100 shares of a stock which closes at \$59.24 would be equal to \$6,100 (\$59.24 * 1.02 = \$60.4248; round to \$61, multiply by 100).

How do long sales, transfers of securities lent via the IB Stock Yield Enhancement Program or un-enrollment affect interest?
Interest ceases to accrue on the next business day after the trade date (T+1). Interest also ceases to accrue on the next business day after the transfer input or un-enrollment date.

What are the eligibility requirements for participation in the IB Stock Yield Enhancement Program?
All IB LLC, IB UK, and IB Canada margin accounts or IB LLC, IB UK and IB Canada cash accounts with equity over \$50,000 at the time of application are eligible. IB Japan and IB India customers are not eligible. Japanese and Indian clients maintaining accounts with IB LLC are eligible.

In addition, Financial Advisor client accounts, fully disclosed IBroker clients, non-disclosed IBroker clients and Omnibus Brokers who meet the above requirements can participate. In the case of Financial Advisors and fully disclosed IBrokers, the clients themselves must sign the agreements. For non-disclosed IBroker and Omnibus Brokers, the broker signs the agreement.

Are IRA accounts eligible to participate in the Stock Yield Enhancement Program?
Yes.

How do I enroll in the IB Stock Yield Enhancement Program?
Clients who are eligible and who wish to enroll in the Stock Yield Enhancement Program may do so by selecting Manage Account followed by Trade Configuration and Permissions, and then checking the box at the top of the page (under Trading Programs) that says Stock Yield Enhancement.

What happens if equity in a participating cash account falls below the \$50,000 qualifying threshold?
The cash account must meet this minimum equity requirement solely at the point of signing up for the program. If the equity falls below that level thereafter there is no impact upon existing loans or the ability to initiate new loans.

How does one terminate Stock Yield Enhancement Program participation?

Clients who wish to terminate participation in the Stock Yield Enhancement Program may do so by selecting Trading Access and then Trading Configuration from Account Management and then removing the check from the box on the Trading Permissions matrix titled "United States (Stock Yield Enhancement Program)".
Requests to terminate are typically processed at the end of the day.

If an account signs up and un-enrolls at a later time, when can it be re-enrolled into the program?
After un-enrollment, the account may not re-enroll for 90 calendar days.

What types of securities positions are eligible to be lent?
Eligible securities include U.S. common stocks (exchange listed, PINK and OTCBB), ETFs, preferred stocks and corporate bonds. Municipal bonds and non-U.S. securities are not eligible.

Is there any restriction on lending stocks which are trading in the secondary market following an IPO?
No, as long as IB is not part of the selling group.

How does IB determine the amount of shares which are eligible to be loaned?
The first step is to determine the value of securities, if any, which IB maintains a margin lien upon and can lend without client participation in the Stock Yield Enhancement Program. A broker who finances client purchases of securities via margin loan is allowed by regulation to loan or pledge as collateral that client’s securities in an amount up to 140% of the cash debit balance. For example, if a client maintaining a cash balance of \$50,000 buys securities having a market value of \$100,000, the debit or loan balance will be \$50,000 and the broker holds a lien on 140% of that balance or \$70,000 of securities. Any securities held by the client in excess of that amount are referred to as excess margin securities (\$30,000 in this example) and are required to be segregated unless the client provides IB the authorization to lend through the Stock Yield Enhancement Program.

The debit balance is determined by first converting all non-USD denominated cash balances to USD and then backing out any short stock sale proceeds (converted to USD as necessary). If the result is negative then we free up 140% of that negative number. In addition, cash balances maintained in the commodities segment or for spot metals and CFDs are not considered.

EXAMPLE 1: Customer is long EUR 100,000 in a USD Base Currency account with a EUR.USD rate of 1.40. Customer purchases USD denominated stock valued at \$112,000 (EUR 80,000 equivalent). All securities are deemed fully-paid as cash balance as converted to USD is a credit.

 Component EUR USD Base (USD) Cash 100,000 (112,000) \$28,000 Long Stock \$112,000 \$112,000 NLV \$140,000

EXAMPLE 2: Customer holds long USD of 80,000, long USD denominated stock of \$100,000 and short USD denominated stock of \$100,000. Long securities totaling \$28,000 are deemed margin securities and the remainder of \$72,000 excess margin securities. This is determined by subtracting the short stock proceeds from the cash balance (\$80,000 - \$100,000) and multiplying the resultant debit by 140% (\$20,000 * 1.4 = \$28,000)

 Component Base (USD) Cash \$80,000 Long Stock \$100,000 Short Stock (\$100,000) NLV \$80,000

Will IB lend out all eligible shares?
There is no guarantee that all eligible shares in a given account will be loaned through the Stock Yield Enhancement Program as there may not be a market at an advantageous rate for certain securities, IB may not have access to a market with willing borrowers or IB may not want to loan your shares.

Are Stock Yield Enhancement Program loans made only in increments of 100?
No. Loans can be made in any whole share amount although externally we only lend in multiples of 100 shares. Thus the possibility exists that we would lend 75 shares from one client and 25 from another should there be external demand to borrow 100 shares.

How are loans allocated among clients when the supply of shares available to lend exceeds the borrow demand?
In the event that the demand for borrowing a given security is less than the supply of shares available to lend from participants in our Yield Enhancement Program, loans will be allocated on a pro rata basis (e.g. if aggregate supply is 20,000 and demand is 10,000, each client will be eligible to have 50% of his/her shares lent)

Are shares loaned only to other IB clients or to other third parties?
Shares may be loaned to any counterparty and is not limited solely to other IB clients.

Can the Stock Yield Enhancement Program participant determine which shares IB can lend?
No. The program is entirely managed by IB who, after determining those securities, if any, which IB is authorized to lend by virtue of a margin loan lien, has the discretion to determine whether any of the fully-paid or excess margin securities can be loaned out and to initiate the loans.

Are there any restrictions placed upon the sale of securities which have been lent through the Stock Yield Enhancement Program?
Loaned shares may be sold at any time, without restriction. The shares do not need to be returned in time to settle your sale of the share and proceeds from the sale are credited to the client’s account on the normal settlement date. In addition, the loan will be terminated on the open of the business day following the security sale date.

Can a client write covered calls against stock which has been loaned out through the Stock Yield Enhancement Program and receive the covered call margin treatment?
Yes. A loan of stock has no impact upon its margin requirement on an uncovered or hedged basis since the lender retains exposure to any gains or losses associated with the loaned position.

What happens to stock which is the subject of a loan and which is subsequently delivered against a call assignment or put exercise?
The loan will be terminated on T+1 of the action (trade, assignment, exercise) which closed or decreased the position.

What happens to stock which is the subject of a loan and which is subsequently halted from trading?
A halt has no direct impact upon the ability to lend the stock and as long as IB can continue to loan the stock, such loan will remain in place regardless of whether the stock is halted.

Can the cash collateral from a loan be swept to the commodities segment to cover margin and/or variation?
No. The cash collateral securing the loan never impacts margin or financing.

What happens if a program participant initiates a margin loan or increases an existing loan balance?
If a client maintains fully-paid securities which have been loaned through the Stock Yield Enhancement Program and subsequently initiates a margin loan, the loan will be terminated to the extent that the securities do not qualify as excess margin securities. Similarly, if a client maintaining excess margin securities which have been loaned through the program increases the existing margin loan, the loan may again be terminated to the extent that the securities no longer qualify as excess margin securities.

Under what circumstances will a given stock loan be terminated?
In the event of any of the following, a stock loan will be automatically terminated:

- If the client elects to terminate program participation
- Transfer of shares
- Borrowing of a certain amount against the shares
- Sale of shares
- Call assignment/put exercise
- Account closure

Do participants in the Stock Yield Enhancement Program receive dividends on shares loaned?
While the lender of the securities is entitled to receive the amount of all dividends and distributions made on loaned securities, they may receive cash payments in lieu of dividends, commonly referred to PIL. Depending upon one’s holding period for the shares loaned, the receipt of a PIL may have an adverse tax impact for certain U.S. taxpayers as such payments are taxed as ordinary income rather than at the reduced rate associated with qualified dividends. IB will attempt to mitigate the payment of PILs by recalling loaned shares prior to a dividend, however, IB cannot guarantee that the borrower will be able to return the shares within the necessary time frame to avoid receipt of PIL.

If the account would not be tax-disadvantaged by receiving a PIL (for example, an IRA account), Interactive Brokers may intentionally keep your shares out on loan over Dividend Record Date in order to continue revenue generation for your account.

Do participants in the Stock Yield Enhancement Program retain voting rights for shares loaned?

No. The borrower of the securities has the right to vote or provide any consent with respect to the securities if the Record Date or deadline for voting, providing consent or taking other action falls within the loan term.

Do participants in the Stock Yield Enhancement Program receive rights, warrants and spin-off shares on shares loaned?

Yes. The lender of the securities will receive any rights, warrants, spin-off shares and distributions made on loaned securities.

How are loans reflected on the activity statement?

Loan collateral, shares outstanding, activity and income is reflected in the following 6 statement sections:

1. Cash Detail – details starting cash collateral balance, net change resulting from loan activity (positive if new loans initiated; negative if net returns) and ending cash collateral balance.

2. Net Stock Position Summary – for each stock details total Shares at IB, the number of Shares Borrowed, the number of Shares Lent and the Net Shares (=Shares at IB + Shares Borrowed - Shares Lent).

3. IB Managed Securities Lent – lists for each stock loaned through the Stock Yield Enhancement Program the Quantity of shares loaned, the Interest Rate (%).

4. IB Managed Securities Lent Activity – details the loan activity for each security including Loan Return Allocations (i.e., terminated loans); New Loan Allocations (i.e., initiated loans); the share Quantity; the Net Interest Rate (%); Interest Rate on Customer Collateral (%) and the Collateral Amount.

5. IB Managed Securities Lent Activity Interest Details – details on an individual loan basis including the Interest Rate Earned by IB (%); the Income Earned by IB (represents the total income IB earns from the loan which is equal to {Collateral Amount * Interest Rate}/360); the Interest Rate on Customer Collateral (represents about half of the income IB earns on the loan) and Interest Paid to Customer (represents the interest income earned on a client’s collateral)

Note: This section will only be displayed if the interest accrual earned by the client exceeds USD 1 for the statement period.

6. Interest Accruals – the interest income is accounted for here as an interest accrual and is treated as any other interest accrual (aggregated but only displayed as an accrual when exceeding \$1 and posted to cash monthly). For year-end reporting purposes, this interest income will be reported on Form 1099 issued to U.S. taxpayers.