The Stock Yield Enhancement Program (SYEP) offers clients the opportunity to earn additional income on their full-paid shares by lending those shares to IB for on-lending to short sellers that 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 borrow;
- Establishing loans and returns;
- Paying interest (expressed as an interest accrual for activity statement reporting purposes) on cash collateral posted to a client’s account; 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 to the market rates, gross income earned from each transaction by IB and interest paid by to the client and IB.
HOW IT WORKS
- Clients may enroll in the Program by logging into Account Management and 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. Activation generally takes place overnight. Eligible accounts include any IB LLC, IB Hong Kong, or IB Canada margin accounts and IB LLC or IB Hong Kong cash accounts with equity in excess of USD 50,000.
- Once activated, IB will review the inventory of eligible shares on a daily basis held by the client and use eligible shares 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, IB will pay the client interest (presented as an interest accrual) on the cash collateral posted to the client’s account for the loan. IB will retain any amounts it earns from the loan in excess of the interest paid to the client. The details regarding the transaction, including the quantity of shares loaned, collateral amount, gross income earned by IB and interest accruing to the client 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 interest rate that IB pays 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 interest paid to participants will reflect such changes;
- Proxy voting rights on loaned shares are forfeited (rights go to borrower);
- Participants may 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'). Payments in Lieu are 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'. IB generally seeks to avoid this consequence for SYEP participants by recalling shares that provide at least a 10 day notice prior to record date, so the actual dividend is paid, but this is not guaranteed.
- 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.