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Stock Yield Enhancement Program - Canada - FAQs

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 interest paid on the cash collateral 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.

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 that represent the aggregate loan value and market value of each class or series of security required to be segregated for each client as determined under IIROC Rule 2000.4 divided by the loan or market value, as the case may be, of one unit of the security.

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 takes a portion of the gross interest paid in exchange for initiating, terminating and managing transactions. In determining the customer’s portion of these fees, the Market Interest Rate % is applied to the loan collateral and this daily Gross Lending Interest is split equally between IB and the customer. For example, assume loan collateral of $10,000 and an annualized Market Interest Rate of 15%. In this example the daily Gross Lending Interest would be $4.16 (($10,000 *.15)/360), of which $2.08 would accrue to the customer and $2.08 to IB. Lending interest is calculated and accrued daily similar to interest credits.

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).

All IB Canada margin accounts or cash accounts with equity over $50,000 at the time of application are eligible.

In addition, Financial Advisor client accounts and fully disclosed IBroker clients, who meet the above requirements can participate. In the case of Financial Advisors and fully disclosed IBrokers, the clients themselves must sign the agreements.

No.

The CIPF does not protect you as a lender with respect to securities loan transactions in which you lend to IB your Fully-Paid Securities. Therefore, the collateral delivered to you (and indicated on your account statement) by IB will constitute the only source of satisfaction of IB's obligation in the event that IB fails to return the securities.

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)".

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.

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.

Eligible securities include U.S. common stocks (exchange listed, PINK and OTCBB), ETFs, preferred stocks and corporate bonds. Municipal bonds and other non-U.S. securities are not eligible.

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 which are in excess of the segregation requirement as determined under IIROC Rule 2000.4.

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.

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.

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).

Shares may be loaned to any counterparty and is not limited solely to other IB clients.

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.

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.

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.

The loan will be terminated on T+1 of the action (trade, assignment, exercise) which closed or decreased the position.

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.

No. The cash collateral securing the loan never impacts margin or financing.

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.

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

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.

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.

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.

    Cash Detail
  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).

    Net Stock Position Summary
  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 Interest Rate (%) and the Collateral Amount.

    IB Managed Securities Lent
  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 Interest Rate (%) and the Collateral Amount.

    IB Managed Securities Lent Activity
  5. IB Managed Securities Lent Activity Fee Details – details on an individual loan basis the Market Interest Rate (%); the Gross Lend Interest (represents the total fee charged to the borrower which is equal to {Collateral Amount * Market Interest Rate}/360); the IB Management Charge (equals 50% of the Gross Lend interest); the Net Lend Interest Rate (represents the half of the Market Interest Rate which the client earns) and the Net Lend interest (represents the client's portion of the interest income. Equals the Gross Lend interest - IB Management Charge). Note: This section will only be displayed if the Net Lend Fee accrual exceeds USD 1 for the statement period.

    IB Managed Securities Lent Activity Fee Details
  6. Interest Accruals – the interest 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 interest income will be reported as miscellaneous income on the Form 1099 issued to U.S. taxpayers.

    Interest Accruals

After un-enrollment, the account may not re-enroll for 90 calendar days.