The Fully Paid Lending Program is an optional service provided by various brokerage firms, including ETRADE. This program allows clients to lend out their fully paid for securities (stocks, bonds, etc.) in exchange for a potential opportunity to earn extra income. Here are some general key points about such programs, and specifically regarding ETRADE’s program as of my last update in 2022:
Fully Paid Lending Program etrade
- How it Works:
- Clients enroll eligible securities in the Fully Paid Lending Program. Once enrolled, the brokerage firm can lend out these securities to other parties, typically short sellers.
- The borrowers pay an interest fee to borrow these securities, and a portion of this interest is then paid to the client whose securities are being lent out.
- Compensation:
- The income earned depends on the demand for the securities in the lending market. Hard-to-borrow securities (those that are in high demand by short sellers) can often command higher lending rates.
- The brokerage firm and the client typically share the lending income. The exact split may vary, but it’s often detailed in the program’s agreement.
- Rights & Dividends:
- While your securities are on loan, you may temporarily lose the ability to exercise certain shareholder rights, such as voting rights.
- If a dividend is paid on a lent-out stock, you typically receive a “payment in lieu of dividends,” which can have different tax implications than regular dividends.
- Collateral & Protection:
- Borrowers are required to provide collateral for the securities they borrow. This collateral is typically held by the lending brokerage.
- Should the borrower default, the brokerage will use this collateral to repurchase the securities on the open market. However, there’s a slight risk if the value of the collateral falls short of the value of the lent securities.
- It’s essential to understand that while there is collateral in place, lending securities does introduce some level of risk.
- Access to Securities:
- Clients can typically sell their enrolled securities at any time. If a client decides to sell a lent-out security, the brokerage will usually recall the security from the borrower. There might be a brief period for this recall process, but it’s generally designed to not impede the client’s ability to trade.
While the above is a general overview, specific terms and conditions, including compensation rates and other details, might vary based on the brokerage firm and any updates they might have made to their program. If you’re considering enrolling in E*TRADE’s Fully Paid Lending Program or any similar program, it’s essential to read all the provided materials, terms and conditions, and possibly consult with a financial advisor or tax professional to understand all the implications.
