Securities lending

Securities lending is being mentioned quite a lot, but I don’t remember a dedicated thread for this topic. Here I came across an interesting article about it that explains basics and shows some internals.

From my side, I will add that iShares Ireland indicate how much a given fund earns with securities lending. That should at least in part explain differences in tracking differences (:joy:) between funds tracking the same index. I haven’t paid much attention to funds from other providers.

P.S. I have securities lending enabled at IB.

I have it turned off as the amounts are not huge and there are doubts in my mind whether any payments in lieu of dividends would qualify for benefits under double tax treaties.

Do the profits from such lending really go to the fund (i.e. to the fund holders) or to the fund management?
Tracking differences are usually quite mini, no?

They are split between them. See some estimations in the article.

Ishares Ireland has a specific disclaimer:
62.5% to the fund, 37.5% to BlackRock.

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I turned it on when Swissquote started offering securities lending a couple of months ago.

I made a total of CHF 2.10 on the equivalent of USD 11’308 of a security lent out for 31 days and the equivalent of EUR 5107.2 of another security lent out for 8 days.
Swissquote took a commission of CHF 1.40 (sic!) and another CHF 0.11 was substracted for VAT.

This left me with a whopping net profit of CHF 0.59.
I look forward to paying tax on that profit.*

If this scheme continues to compensate me so well I plan on living off it in the not too far off future.

* At the nice high tax bracket I’m in.