Securities Lending

Ideas šŸ’”
1

Brokers like Schwab allow users to opt-in to securities lending. This means your shares are available to borrow by short sellers, for this, you are paid interest. You do not miss out on dividends. All the big ETFs already lend out their shares for an additional income stream, and Iā€™d like to do so too. You can pay me for the pleasure of being wrong.

This has been mentioned a few times in different topics. The last time it was addressed specifically, it was merged into a nonsense discussion on morality and goodness, which really belongs on a philosphy board, not a finance one.

2

Posting a new idea/suggestion for this will only result in it being merged with an existing one. Why? Duplicate ideas and request posts are merged, so unfortunately the likely result of your post is just creating more admin work for people. This is the forum policy. It matters not how nonsensical you think the discussion on an idea thread becomes.

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The ability to short shares, and the ability to lend shares are two different things.

The mod who merged them did not understand what was being requested.

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4

It is a different thing though, the other thread is about allowing you to short sell, this is about allowing you to lend shares to a short seller

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5

I thought I heard FT were looking into this. I guess it has bad press at the moment but if its opt in rather than opt out I canā€™t see an issue.

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6

The opt in/out feature would be great. A certain competitor forces you to opt in to share lending to use their service. This is most definitely controversial.

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8

:eyes:

image

Glad to see this on the roadmap (not sure Iā€™ve seen it anywhere official before)

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9

Yeah thatā€™s positive, they mentioned they might share some of it with customers!

It means theyā€™ll make money of GIA ETF investors, as currently theyā€™ll only make money out of interest on cash balances for these.

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10

So securities lending is a thing

But whereā€™s my cut?

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12
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Under ā€˜why lend sharesā€™, it says itā€™s an ā€œopportunity to make an additional low risk income from long term assetsā€. That would suggest we should get a cut. Although, it does need to be opt-in only, especially for Freetrade Plus subscribers.

Whether itā€™s opt-in or not will show what kind of broker Freetrade wants to become, which will be interesting.

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16

I just emailed Freetrade. Customers do not get any cut from share lending. Apparently the only benefit customers get is allowing Freetrade to ā€œcontinually offer a low cost product.ā€. All great, but iā€™d sooner pay a bit more to remove the risk and complexity of having shares ā€œlentā€ out.

Still not sure what happens in a situation where Freetrade and the org they lent the shares to both become insolvent. Suspect would be a complete nightmare.

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Hey James,

Thereā€™s more detail on that and other topics on the main discussion thread here.

In terms of your last point, itā€™s important to reiterate that when shares are lent, we receive collateral that as greater than the value of shares on loan. The values of this collateral and the shares are checked daily so that any discrepancies can be addressed.

In the unlikely event of the borrower (only large global banks) and Freetrade both becoming insolvent, the collateral is held in segregated accounts at a different institution in line with client money rules.

18

Thanks Alex.

So if there is minimal risk, why donā€™t Freetrade agree to compensate users for 100% of any losses as of the market price when the loss is incurred.

For example, if I buy a share at Ā£100, FT lends it and gets Ā£100 collateral, my shares increases in value to Ā£200. The borrower defaults on the loan. FT realises the Ā£100 collateral, so as the customer I would make 50% loss compared to what my share should have been worth?

Not to mention, the borrower is using the share to bet against my position.