Securities Financing - FAQs

IB will lend your fully-paid US stocks and eligible US corporate bonds only.

  • In order to optimize your revenue, we focus on the stocks with a borrow offset greater than 25bps from Fed Funds, the industry interest rate benchmark. Therefore, not all stocks in your portfolio may be loaned.
  • The universe of stocks that are sought after and thus have the most value from a stock loan perspective are labeled Hard to Borrow (HTB) and represent a subset of the total equity available for lending in the USA.
  • There is a constant shifting of the most desirable stocks and there is no comprehensive way to predict which stock will become HTB, so IB has set up the Stock Yield Enhancement Program (SYEP) to include all the stocks in a customer's account. When a stock becomes HTB, the IB algorithm can search all customer portfolios in the program for the stocks that can be loaned effectively.

None. Your ability to borrow is still based on your stock positions.

Yes. Your Stock Yield Enhancement Program activity is covered by three separate sections in an activity statement:

  • IB Managed Securities Lent - In this section, cash collateral is listed under Collateral Amount.
  • IB Managed Securities Lent Activity - This section lists each stock loan transaction including Transaction ID, Quantity, Interest Rate on Customer Collateral and Collateral Amount.
  • IB Managed Securities Lent Fee Details - This section lists each stock loan transaction with interest Rate earned by IB, Interest Paid to IB and Interest Paid on Customer Collateral.

Yes. IB marks-to-market all positions nightly, which is the industry convention. The mark-to-market is calculated by rounding the end-of-day closing security price up to the nearest dollar. The collateral amount is then calculated by multiplying the rounded security price times the number of shares by 102% US securities (the collateral amount will be at least 100% but may be greater based on applicable laws or market custom).

For example, customer A has enrolled in the SYEP and IB has subsequently loaned 5000 shares of XYZ on behalf of this customer. XYZ's closing price is $22.15. The mark-to-market is calculated by rounding $22.15 * 1.02 = 22.59 rounded up nearest dollar = 23 * 5000 = $115,000.

You are free to sell your loaned stock at any time. Upon the sale, IB recalls the loan from the street and makes normal delivery on your behalf on settlement date. The stock loan is terminated.

You can sell any number of shares including the entire amount if you want. There is no difference in how you trade based on whether or not the shares are lent.

If the stock is fully paid, it will benefit you the same whether or not it has call options written against it.

The US imposes the same tax withholding rates for both dividends and payments in lieu for non-US taxpayers. The default rate is 30%; however, a lower rate may be applied if you qualify for the benefits of a US tax treaty.

There is no impact on capital gain treatment upon the sale of shares that have been lent. Payment in lieu income, or payments received in lieu of dividends or interest is considered ordinary income and does not meet the definition of qualified dividend income and therefore is taxed at ordinary income tax rates rather than qualified dividend rates.

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.

Yes. The Stock Yield Enhancement Program enrollment process is the same for all eligible accounts, including IRA accounts.

Yes, the Stock Yield Enhancement Program is available to eligible customers of IB Canada Inc. Please click here for more information.

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.

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 CAD 10,000 and an annualized Market Interest Rate of 15%. In this example the daily Gross Lending Interest would be CAD 4.16 (($10,000 *.15)/360), of which CAD 2.08 would accrue to the customer and CAD 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 CAD 59.24 would be equal to CAD 6,100 (CAD 59.24 * 1.02 = CAD 60.4248; round to CAD 61, multiply by 100).

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

The provisions of the Securities Investor Protection Act of 1970 may not protect you as a lender with respect to securities loan transactions in which you lend your Fully-Paid Securities to IB. Therefore, the collateral delivered to you (and indicated on your account statement) may constitute the only source of satisfaction of IB's obligation in the event that IB Fails to return 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.

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.

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

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 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 the Stock Yield Enhancement Program the Quantity of shares loaned, the Interest Rate (%).

    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 (%); Interest Rate on Customer Collateral (%) and the Collateral Amount.

    IB Managed Securities Lent Activity
  5. IB Managed Securities Lent Activity Interest Details – details on an individual loan basis including the Interest Rate Earned by IB (%); the Income Earned by IB (represents the total income IB earns from the loan which is equal to {Collateral Amount * Interest Rate}/360); the Interest Rate on Customer Collateral (represents about half of the income IB earns on the loan) and Interest Paid to Customer (represents the interest income earned on a client’s collateral).

    Note: This section will only be displayed if the interest accrual earned by the client 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 on Form 1099 issued to U.S. taxpayers.

    Interest Accruals

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