The Stock Yield Enhancement Program offers participants the opportunity to earn additional income on their full-paid shares by lending those shares to IB in exchange for a portion of the fees short sellers are willing to pay to borrow them. Upon enrollment, Program activities are managed in their entirety by IB and require no actions on the part of participants. These activities include the following:
- Identifying the shares in client accounts which borrowers are attempting to locate;
- Establishment of loans and returns;
- Crediting of loan fee income (expressed as an interest accrual for activity statement reporting purposes); and
- Reporting of loan activity, cash collateral transfers and income on the activity statements;
In contrast to the securities lending programs offered by others, IB provides complete transparency as to the market rate and gross fees earned from each transaction which will be split equally between the client and IB.
HOW IT WORKS
- Clients may enroll in the Program by logging into Account Management and selecting the Trading Access and then Trading Configuration menu options and then checking the box marked Stock Yield Enhancement Program. Activation generally takes place overnight. Eligible accounts include any IB LLC or IB UK margin accounts and IB LLC or IB UK cash accounts with equity in excess of USD 50,000.
- Once activated, IB will review on a daily basis the inventory of eligible shares held by the participant vis-a-vis that which is necessary to satisfy internal and external borrow demand. If the supply of eligible shares exceeds borrow demand, clients will be allocated loans on a pro rata basis (e.g. if aggregate supply is 20,000 shares and aggregate demand 10,000, each client will be eligible to have 50% of their shares loaned).
- At the end of each day that any loan is in place, the client will receive a payment presented as an interest accrual which is credited to equity and which represents 1/2 of gross lending fee charged to the end borrower. The remaining 1/2 accrues to IB as compensation for managing the loan. The details regarding the transaction, including the quantity of shares loaned, collateral amount, market fee rate, gross fee, IB management charge and net fee are reflected on the daily activity statement.
- 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
- 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 market fee rate for any given loan is subject to supply and demand considerations that are outside the control of IB and which are susceptible to change from one day to another without advance notice or limit as to the magnitude of change. The net fee income available to participants will reflect such changes;
- Proxy voting rights on loaned shares are forfeited (rights go to borrower);
- Participants will not receive actual dividends on loaned shares but instead a cash payment equivalent to the full dividend to be paid on the same date as the dividend (referred to as a 'Payment in Lieu'). As a Payment in Lieu is treated differently than a dividend for U.S. tax reporting purposes, certain taxpayers may not receive the more favorable tax treatment afforded to dividend payments deemed 'qualified';
- Loaned shares are typically used to facilitate short sales and such transactions may affect the value of shares.
For additional FAQs relating to the Yield Enhancement Program, click here.