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 a portion of the fee paid by the borrower as loan compensation for any day the loan exists and will receive cash collateral to secure the return of the stock loan at its termination.
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 addition, IB assesses a Management Fee equal to 50% of the net loan fees paid in exchange for initiating, terminating and managing transactions. In determining the customer’s portion of these fees, the Market Fee Rate % is applied to the loan collateral and this daily Gross Lending Fee is split equally between IB and the customer. For example, assume loan collateral of $10,000 and an annualized Market Fee Rate of 15%. In this example the daily Gross Lending Fee would be $4.16 (($10,000 *.15)/360), of which $2.08 would accrue to the customer and $2.08 to IB as its Management Fee. Lending fees are calculated and accrued daily similar to interest credits.
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).
What are the eligibility requirements for participation in the IB Stock Yield Enhancement Program?
All IB LLC and IB UK margin accounts or IB LLC and IB UK cash accounts with equity over $50,000 at the time of application are eligible. IB Canada, 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?
No.
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 Trading Access and then Trading Configuration from Account Management and then checking the box on the Trading Permissions matrix titled "United States (Stock Yield Enhancement Program)".
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.
What is the difference between AQS and the IB Stock Yield Enhancement Program?
Clients lending through AQS participants self-direct their activity based upon information provided via AQS’ automated centralized market. In contrast, loans transacted through the Stock Yield Enhancement Program are determined and managed by IB.
Can I participate in both AQS and the IB Stock Yield Enhancement Program?
Clients can only lend in one program at a time. If, for example, a client signs up for the Yield program and is already approved for AQS lending, we will disable their ability to lend at AQS and recall their loans. They will still, however, retain the ability to borrow through AQS and can see market data. If the client disables the Yield Enhancement Program, their AQS loan permissions will be re-enabled. In sum, the yield program always takes precedence.
If my account is eligible for AQS am I automatically eligible to participate in the IB Stock Yield Enhancement Program?
No.
If my account is eligible for the IB Stock Yield Enhancement Program am I automatically eligible to participate in AQS?
No.
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.
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 (similar to AQS)?
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, commonly referred to PILs, in lieu of dividends. Depending upon ones 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 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 PIL treatment.
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.
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 (through AQS or the Stock Yield Enhancement Program) and the Net Shares (=Shares at IB + Shares Borrowed - Shares Lent). 
3. IB Managed Securities Lent – lists for each stock loaned through AQS or the Stock Yield Enhancement Program the Quantity of shares loaned, the Net Fee Rate (%) and the Collateral Amount. 
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 Fee Rate (%) and the Collateral Amount. 
5. IB Managed Securities Lent Activity Fee Details – details on an individual loan basis the Market Fee Rate (%); the Gross Lend Fee (represents the total fee charged to the borrower which is equal to {Collateral Amount * Market Fee Rate}/360); the IB Management Charge (equals 50% of the Gross Lend Fee); the Net Lend Fee Rate (represents the half of the Market Fee Rate which the client earns) and the Net Lend Fee (represents the client’s portion of the fee income. Equals the Gross Lend Fee - IB Management Charge).
Note: This section will only be displayed if the Net Lend Fee accrual exceeds USD 1 for the statement period. 
6. Interest Accruals – the loan fee 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 fee income will be reported as miscellaneous income on the Form 1099 issued to U.S. taxpayers.
Why does the "price" on hard to borrow stocks not agree to the closing price of the stock?
In determining the cash deposit required to collateralize a stock borrow position, the general industry convention is for the lender to require a deposit equal to 102% of the prior day's settlement price, rounded up to the nearest whole dollar and then multiplied by the number of shares borrowed. As borrow rates are determined based upon the value of the loan collateral, this convention impacts the cost of maintaining the short position, with the impact being most significant in the case of low-priced and hard-to-borrow shares.
Account holders may view this adjusted price for a given transaction in the "Non-Direct Hard to Borrow Details" section of the daily account statement. An example of this collateral calculation and its impact upon borrow fees is provided below.
Example
Sell short 100,000 shares of ABC at a price of $1.50
Short sale proceeds received = $150,000.00
Assume the price of ABC falls to $0.25 and the stock has a borrow fee rate of 50%
Short stock collateral value calculation
Price = 0.25 x 102% = 0.255; round up to $1.00
Value = 100,000 shares x $1.00 = $100,000.00
Borrow fee = $100,000 x 50% / 360 days in year = $138.89 per day
Assuming the account holder's cash balance does not include proceeds from any other short sale transaction then this borrow fee will not be offset by any credit interest on the short sale proceeds as the balance does not exceed the minimum $100,000 Tier 1 threshold necessary to accrue interest.
Interest Benchmark Definitions
Fed Funds Effective (USD only) is the volume weighted average of the transactions processed through the Federal Reserve between member banks. It is intended to reflect the best estimate of interbank financing activity for Reserve Bank members and is the reference for many short term money market transactions in the broader market.
LIBOR (many currencies) stands for London Inter-Bank Offered Rate. It is a daily fixing for deposits with durations from overnight to 1 year and is determined by a group of large London banks. It is the most widely used measurement for interest rates on most currencies outside the domestic market(s).
EONIA (EUR only) is the global standard for overnight Euro deposits and is determined by a weighted average of the actual transactions between major continental European banks mediated through the European Central Bank.
HIBOR (HKD only) is a daily fixing based on a group of large Hong Kong banks. The same methods and durations are set as for LIBOR currencies.
KORIBOR (KRW only) is an average of the leading interest rates for KRW as determined by a group of large Korean banks. The benchmark utilizes the KORIBOR with 1 week maturity.
STIBOR (SEK only) is a daily fixing based on a group of large Swedish banks. The same methods and durations are set as for LIBOR currencies.
TIIE (MXN only) is the interbank "equilibrium" rate based on the quotes provided by money center banks as calculated by the Mexican Central Bank. The benchmark TIIE is based on 28-day deposits so is atypical as a measure for short term funds (most currencies have an overnight or similar short term benchmark).
Overnight (O/N) rate is the most widely used short term benchmark and represents the rate for balances held from today until the next business day.
Spot-Next (S/N) refers to the rate on balances from the next business day to the business day thereafter. Due to time zone and other criteria, Spot-Next rates are sometimes used as the short-term reference.
Day-Count conventions: it is beyond the scope of this document to describe day-count conventions and their use in interest calculations. IB conforms to the international standards for day-counting wherein deposits rates for most currencies are expressed in terms of a 360 day year, while for exceptional currencies (ex: GBP) the convention is a 365 day year.
Why is my account being charged interest when my cash balance is a credit?
An account will be subject to interest charges despite maintaining an overall net long or credit cash balance under the following circumstances:
1. The account maintains a short or debit balance in a given currency.
For example, an account maintaining a net cash credit balance equivalent to USD 5,000 comprised of a long USD balance of 8,000 and a short EUR balance equivalent to USD 3,000 would be subject to an interest debit based upon the short EUR balance. There would be no offsetting credit on the long USD balance as it is less than the USD 10,000 Tier I level above which interest is earned.
Account holders should note that in the event they purchase a security which is denominated in a currency that they do not hold in their account, IB will create a loan in that currency in order to settle the trade with the clearinghouse. If one wishes to avoid such loans and their associated interest charges, they would need to either deposit funds denominated in that particular currency or convert existing cash balances via the Ideal Pro (for balances of USD 25,000 or above) or odd lot (for balances less than USD 25,000) venue prior to entering into your trade.
2. The credit balance is comprised principally of proceeds from the short sale of securities.
For example, an account maintaining a net cash credit balance of USD 12,000 which is comprised of a USD debit of 6,000 in the security sub-account (less the market value of any short stock positions) and a short stock market value credit of USD 18,000 would be charged interest on the Tier 1 debit of USD 6,000 and would earn no interest on the short stock credit as it falls below the USD 100,000 Tier I level.
3. The credit balance includes unsettled funds.
IB determines interest debits and credits solely based upon settled funds. Just as an account holder is not assessed interest charges on funds borrowed to purchase a security until such time that purchase transaction settles, the account holder will not receive an interest credit, or offset against a debit balance, on funds originating from the sale of a security until such time the transaction has settled (and IB has been credited funds by the clearinghouse).
Are there any particular risks that one should be aware of when using SSFs to either invest excess funds or borrow funds at available synthetic rates?
Overview:
While the High and Low Synthetic strategies are both hedged positions, the futures leg is subject to a daily cash variation of the mark-to-market gain or loss whereas the stock leg is not (mark-to-market gain or loss is reflected in account equity but there is no cash impact until the position is closed). If, for example, an account holds a High Synthetic position and the stock prices increases significantly, the resultant variation pay on the short futures leg may erode the account’s cash balance resulting in a debit balance which is subject to interest payments. The net effect in this example would be to reduce and potentially erase the earnings on the High Synthetic position
Is there a benefit to using EFPs if one doesn’t have an existing long or short stock position to swap?
Overview:
One can enter into an Exchange for Physical (EFP) to either invest excess funds or borrow funds at available synthetic rates. Synthetic rates are determined by taking the difference between the SSF and underlying stock and netting dividends to calculate an annualized synthetic implied interest rate over the period of the SSF.
High Synthetic Bid Rev Yield – represents the investment opportunity available through an EFP sale (buy stock and sell it forward at a premium higher than the interest your cash generates).
Low Synthetic Ask Rev Yield - represents the borrowing opportunity available through an EFP purchase (sell stock and buy it forward at a discount lower than the lending rate available).
Does a deposit subject to a "Credit Hold” accrue credit interest during the hold period?
Overview:
The answer depends upon the method of deposit. In the case of deposits made via ACH, interest accrues from the date the deposit arrives through the four business day credit hold period after which it is credited to the account. In the case of check deposits other than Bank Checks, no interest is accrued during the credit hold period. Bank Checks and wire transfers are credited to the account effective upon receipt and are therefore not subject to any credit hold
Glossary terms:
What does the Interest Accrual Reversal line item on the Activity Statement represent?
Overview:
Each day, IB calculates and reports in the Interest Accruals section of the Activity Statement a forecast or accrual of interest earned or to be paid for the statement period. Around the first week of each month the interest which has been accrued during the prior month is "backed-out" or reversed and actual interest for the month is posted in the Cash Report section. These reversals, which occur once a month, should be close to the actual interest, although they may not always be exactly equal since accruals are a forecast of actual interest.
Account holders should also note that accrued interest is only posted for any given reporting period when the amount exceeds $1, either positive or negative. Balances below $1 are retained and posted once, when aggregated with future accruals, the amount exceeds $1.
Interest credit on short stock proceeds
Overview:
How can I determine the interest credit or fee associated with a stock borrow position?
Background:
When account holders initiate a short position, IB must borrow the shares on their behalf in order to satisfy its settlement obligation with the clearinghouse. The agreement through which these shares are borrowed requires that IB provide the lender with a cash deposit in an amount equal to or greater than the value of the loaned securities as loan collateral. The lender charges a fee for providing this service, generally expressed as the difference between the interest which accrues to the lender on the cash deposit and the agreed upon rate of interest which is rebated back to the borrowing broker (typically pegged to the Fed Funds overnight rate for USD denominated cash deposits).
While many brokers will pass a portion of this rebate only to institutional clients, all IB clients are eligible to receive an interest credit on their short stock sales proceeds to the extent those proceeds exceed the equivalent of USD 100,000. When the supply of a given security available to borrow is high relative to it’s borrow demand, account holders can expect to receive an interest credit on their short stock balance equal the Benchmark Rate (e.g., Fed Funds Effective overnight rate for USD denominated balances), less a spread ranging from 1.25% on balances of USD 100,000 to 0.25% for balances over USD 3,000,000.
When the supply and demand attributes of a particular security are such that it becomes hard to borrow, the rebate provided by the lender will decline and may even become negative. These factors will be passed on in the form of either a lower rate at which credit interest is paid or a rate at which interest is charged (i.e., a cost to borrow). As rates vary by both security and date, IB recommends that customers utilize the Short Stock (SLB) Availability tool accessible via the Tools icon within Account Management. Note that the indicative rate reflected in this tool is intended to correspond to the amount paid on Tier III balances, that is, short sale proceeds of USD 3 million or greater. For balances which are less, the rate is adjusted based upon the tier and the Benchmark Rate associated with the trading currency.
EXAMPLE
Assume, for example, that the SLB tool reports an indicative rate of 3.00% for the hypothetical USD-denominated stock 'ABC'. This rate implies a Fed Funds Effective Benchmark Rate of 3.25% (as the rate paid on Tier III balances equals the Benchmark Rate less 0.25%); a rate paid on Tier I balances (amounts between USD 100,000 and 1 million) of 2.00% (Benchmark Rate less 1.25%); and a rate paid on Tier II balances (amounts between USD 1 million and 3 million) of 2.75%.
IMPORTANT NOTE
Information provided within the SLB tool, particularly that relating to shares available to borrow and indicative rates, is offered on a best efforts basis without warranty as to its accuracy or validity. Share availability includes information from third parties which is not updated in real time. Rate information is indicative only. Trades executed in the current trading session typically settle in 3 business days and the actual availability and borrow costs are determined on settlement day. Traders should be aware that rates and availability can change significantly in the time between trade and settle dates, particularly in thinly traded stocks, small cap stocks, and classes of stock that have an upcoming corporate action (including dividends).
How Interest is Calculated
Overview:
How are interest credits and debits determined?
Background:
The net interest credit or debit, if any, for your account is accrued daily and posted monthly using the following three steps:
- Organize Cash Balance by Group and Currency: for each currency type, a long or short cash balance is determined for each of: a) the commodity sub-account; b) the security sub-account less the market value of any short stock positions; and c) the balance of any short stock positions. Balances are partitioned in this manner as security and commodity balances are subject to distinct segregation pools and investment guidelines. Cash balances associated with stock sales, while maintained in the securities sub-account, are pledged as collateral to secure the stock borrow position and are therefore associated with unique returns.
- Determine the Benchmark Rate: for each currency type, an internationally recognized benchmark for overnight deposits is used as a basis for determining the rates at which we pay and charge interest. Long balances are paid interest at the Benchmark Rate less a % spread and short balances charged interest at the Benchmark Rate plus a % spread.
- Apply Rate by Balance Tier: the % spread from the Benchmark Rate is then applied on a tier basis such that larger cash balances generally receive an increasingly (higher credit/lower debit) effective rate
For additional information regarding interest calculations including current Benchmark Rates, click here.
EXAMPLES:
1. An account maintaining a net cash credit balance of USD 12,000 with a credit of USD 6,000 in each of the security sub-account (less the market value of any short stock positions) and the commodity sub-account, would earn no interest as each group holds a balance of less than the USD 10,000 Tier I level above which interest is earned.
2. An account maintaining a net cash credit balance equivalent to USD 12,000 comprised of a long USD balance of 6,000 and a long EUR balance equivalent to USD 6,000 would earn no interest as each currency group holds a balance of less than the USD 10,000 Tier I level above which interest is earned.
Similarly, an account maintaining a net cash credit balance of USD 12,000 with USD debit of 6,000 in the security sub-account (less the market value of any short stock positions) and a short stock market value credit of USD 18,000 would be charged interest on the Tier 1 debit of USD 6,000 and would earn no interest on the short stock credit as it falls below the USD 100,000 Tier I level.
3. An account maintaining a net cash credit balance equivalent to USD 5,000 comprised of a long USD balance of 8,000 and a short EUR balance equivalent to USD 3,000 would be subject to an interest debit based upon the short EUR balance. There would be no offsetting credit on the long USD balance as it is less than the USD 10,000 Tier I level above which interest is earned.
IMPORTANT NOTE:
While successively larger debit balances are generally afforded a more favorable (i.e., lower) borrowing rate, IB charges a higher default interest rate for large debit cash balances denoted as Tier IV as defined on the website.
Glossary terms:
