Iām very interested in @freetrade 's response to the recent points.
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Yea im reading everything they updated and im just surprisedā¦ freetrade going this way for realā¦
Other things im unhappy with :
- While your securities are lent, you will not be able to exercise your shareholder rights (including voting rights). If there is a corporate action that Freetrade currently supports, we will endeavour to recall your shares before the record date.
Seriously take my voting rights away niceā¦
- If, in the unlikely event, a borrower fails to return your securities, Freetrade will be holding this collateral on your behalf. Freetrade will take all reasonable measures to return the securities to you.
These events arenāt so unlikely. As well what is reasonable measures? Thatās not specified at all.
- In exchange for any securities that are lent, Freetrade receives fees from the borrowers.
Good investment for freetradeā¦ no risk at all as thatās taken by the product (customers i mean) and all the rewards.
*Securities lending transactions indirectly expose you to counterparty credit risk. This is a risk when a counterparty - in this case, the borrower of your shares - does not fulfil their obligation to return your shares. This could arise because the borrower becomes insolvent.
Again wiping the hands āyour risk my reward mentality.ā
- In the unlikely event that the borrower defaults on their obligation to return the securities, Freetrade will take all reasonable measures to return equivalent shares to you.
Reasonable measures? Sure you will.
- In an insolvency, the collateral value should be greater than the value of your lent securities, but in a scenario where this was not the case, you may receive back collateral value that is less than the cost of replacing the shares.
this ones important as they basically say you f***** enjoy.
- The borrower becomes the legal owner of the shares while a loan is open. This means that you will temporarily lose ownership of those securities and any associated rights.
Enough said.
*Other corporate actions will be treated in the same manner as they are currently treated for shares that are not on loan. However, voting rights are held by the borrower during the time that a loan is open.
So whoever borrows your shares get full voting rights while the loan is open. This can be very missued im sure i dont need to explain why.
- On the sales of shares : Freetrade monitoring sale activity throughout the day and looking for opportunities to re-allocate the loan to another Freetrade customer. There could be instances where settlement of your sale is delayed beyond the normal settlement cycle - this will result in you not being able to withdraw those sale proceeds from your account until settlement (as happens today).
*. If Freetrade exercises its right to use the Lendable Securities, we will ensure that we have received liquid collateral of greater value in return for the securities lent. You will therefore become the beneficial owner of the collateral, as set out at clause 24.2.6 below. This means that during this time:
(a) you will no longer have ownership of the lent securities;
(b) section 23 of this Agreement will not apply to the lent securities; and
(c) you will not be able to exercise any shareholder rights (including any voting rights) in respect of the lent securities.
When the relevant securities lending transaction(s) are complete, Freetrade shall be obligated to return the lent securities to you.
It is not possible for you to select securities for participation in Securities Lending
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The right to use which you grant to us allows us to exercise our right to use your Lendable Securities to enter into securities lending transactions at our discretion. We will not notify you where we have exercised our right to use.
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If your Lendable Securities are already on loan (i.e. we have exercised our right to use your Lendable Securities under this section 24.2) and you decide to sell an amount of the securities in your Freetrade Account that will mean selling the Lendable Securities, a recall process will be initiated. The recall process will involve returning your Lendable Securities to you, at which point your sell instruction will be completed. This recall process may delay the time it takes to settle your sell instruction (however this should not normally be the case).
So you might not be able to sell when you want to.
Im really disappointed in you freetrade, been a customer for over a year now and i got majority of my holding in the isa so these changes do not apply to me but its a principal for me that i will not support such companies.
I joined because you were different before but now it looks like another knock off Robinhood wannabes.
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They already did just read the updated terms
This will turn Freetrade into a repository for pocket money rather than serious long term pension money.
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Oh yea then the answer to his question is yes.
TBH I thought the purpose of the this Forum was for that - Basically how Iām reading it is Freetrade will take my Securities without me knowing, give it to some random Pension Bloke - Then if the Pension Bloke messes up I will get my Share back without the previous gains I made
To be fair I think the risk is pretty small. What kind of stock you have plays a part. My issue is that Freetrade are asking us to take that risk. With my retirement money Iām not prepared to take that risk over the next few decades. People can make their own mind up but I donāt know why anyone would go along with it with a retirement fund when there are other brokers out there. Still hoping they donāt do it.
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@ShaidK this is a community forum. You need to distinguish between personal opinions of people who donāt represent Freetrade and clarifications given by Freetrade staff. In case of doubt use the in app or email help facility.
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This is going to turn Freetrade into little more than what some might see as the 2nd best to Trading 212.
Trading 212 already run share lending, they do it without the fees though, with the only exception of a 0.15 FX fee.
I am not wildly comfortable that I lose legal ownership (beneficial ownership in corporate nominee lingo) while the shares are on loan.
Iām also not wildly comfortable that we donāt have voting rights yet whoever lends the shares from us gets that.
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Voting rights is one of the frills we donāt get anyway. Personally I can accept that
That doesnāt make sense, If you get your share back how would it be without the gains?
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Hi Steve,
Itās important to note (as per the International Securities Lending Associationās latest data), 26% of securities on loan come from pension funds. Another 20% come from investment funds (like ETFs). Typically it is asset owners who are lending shares out to generate additional yield.
Alex
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While beneficial ownership of the shares is transferred you also become beneficial owner of the collateral that we hold on your behalf.
In terms of voting rights (a feature that we do want to introduce) we would be able to recall shares ahead of the record date in the future to ensure you are able to vote.
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TBH all I want to know is which Securities has been lent out without waiting till the end of the month - I will contact someone on Freetrade in regards to that then
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Thanks for the response Alex.
My point is thisā¦ You can say whatever you like about the risk of default being small and I wonāt disagree (or agree) with you.
If you think the risk is small ā¦ YOU take it. Guarantee that no Freetrade customer will lose money due to you making money loaning out our shares.
Next bit is my opinion,
You canāt make that guarantee because you know youād be writing a blank cheque. But the thing that relegates you to the status of joke pocket money broker is that you want us Freetrade customers to write the blank cheque instead. Indefensible!
Why should I tie up my long term pension money under these conditions when there are other established brokers out there who are competetively priced and donāt loan out sharesā¦ and now youāve forced me into lookingā¦ Include all the frills that up to now Iāve not minded going without because ā¦ Itās Freetrade and it means something
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@GoFundYourself As both @adam and @Viktor mentioned above in this thread, weāve always been open with our customers that we planned to introduce securities lending at some stage in the future.
On balance, this is an incredibly common practice in financial markets and itās one that supports price discovery and liquidity. I would argue that morality doesnāt necessarily come into the equation, however, I appreciate and respect that there are strong views on both sides of this debate.
If you take the London market for example (the Retail Service Provider network), the reason brokers like Freetrade are able to facilitate relatively seamless orders throughout the day is because there is a group of market makers who are obliged to quote continuous ātwo wayā (bid-offer) prices throughout the trading day.
That means when your order hits the market and it is within the bounds of what theyāre quoting they need to sell to you (or buy from you). Often when they sell to you they might not hold that stock in their inventory so they need to go out to an investment bank and borrow the shares to transfer to us in time for settlement (which occurs two business days after you execute an order).
While there are certainly risks involved (as exist in any financial transaction), there are a number of processes in place to manage this risk.
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Collateral must exceed the value of securities on loan. This is held as client assets and are subject to the same controls under which all client money is held.
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Collateral is valued daily and any discrepancy in value to the shares on loan are rectified.
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Our counter parties are only the largest global banks.
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Your investments remain protected by the FSCS up to Ā£85,000.
Thatās incorrect. The delay could occur around settlement of a transaction (when shares and money change hands) as opposed to execution.
As I just noted above, while we donāt have the facility to support voting (but do support some corporate actions), in future when we offer this we are able to recall shares for customers who wish to exercise their rights.
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Basically why is the customer taking the risk and not freetrade?
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So if the risk of loss is so small why do you make us investors take that risk? Just update the terms to say no Freetrade customer will lose out due to Freetrade loaning out our shares. Youāre making the money from these deals, you take the risk. Simples.
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Yes that literally solves the problem straight away.
I dont understand why they trying to say oh there is so manny fail safes there is barely any risk. They should just take that risk themselfs.
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I assume doing it the way you suggest would add a whole load of costly capital and/or liquidity requirements
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