Securities lending

Investing / Others
1

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.

2

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.

3

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?

4

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

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

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5

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.

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6

Any updates and experiences with securities lending, @Your_Full_Name or anyone else? Also pinging @ma0 from the other thread (but posting here because this seems to be generic and not specifically IBKR related). I’d be especially interested in experiences with an ETF heavy portfolio, because I wouldn’t think ETFs will be generating much profits from being lent out.

Swissquote seems to push it a lot. I get the usual email stuff (newsletter and semi-frequent supposed limited/personal offers from them), but now I have gotten a old school paper mailer to try to convince me to activate securities lending. Looks like it’s at least profitable for them…

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7

Swissquote

Since August 2023 I made CHF 212.53 on 10 securities once lent but no longer lent (“Abgeschlossene Leihen insgesamt CHF”).
Posititions worth CHF 645’874.83 were lent out. Most of the profit came from two positions: MAIN worth about $40k garnered CHF 190.23 and VXUS worth about $450k garnered CHF 20.30.
Swissquote’s overview page doesn’t list how long these positions were lent out.

Currently 25 securities are still lent out and have made me CHF 45.86 so far. Most of this is from MPW worth about $20k garnering CHF 41.54.

Kind of peanuts, but it almost pays for the Depotgebühren which is kinda nice.

IBKR

Grand total of USD 0.22 from a bunch of securities lent out. :rofl:
IBKR provides details on what was lent out and for how long:

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I suppose if you don’t lend out companies with lots of short interest you won’t capture lots of lending fees, and in my portfolio MPW is the only such position.

If the profits from my securities lending continue at this pace I expect to be a trillionaire by the time the sun becomes a red giant (in approximately 5 billion years).

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8

Thanks, that’s about as much little as I expected :unamused:

And good luck with 5 Ga’s worth of inflation :innocent:

PS: With your portfolio, I hope you too negotiated away the silly additional 0.3%/million custody fee at Swissquote…if not, give them a call.

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9

Yup, did so, but thanks for the tip anyhow.

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10

It generates quite some profit for me on ibkr.

For the past month about 0.25% annualized.

It‘s recouping about 10-15% of my margin interest I pay, on currently 30% margin.

IBKR

Using various factor etfs and managed futures etfs.

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11

In the last 3 years, I’ve seen interests from ETF lending range from 0.01% to 0.1% of assets.
Individual ETF from 0 to 0.2%.
Highest values could be overstated due to some re-shuffling during the year, I just used the year-end asset value for the ratio.

Depending on assets, it’s either peanuts, or a bucket full of peanuts :peanuts: :monkey:

Interests in 2022 were 3x higher then 2023. 2024 could end up like 2023.

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12

I have nothing much to say, just that ibkr estimates ~0.9% interests on chdvd. I suppose there aren’t many people that buy chdvd on ibkr.

13

I assume this should be read as up to 0.9%.

IE-ETFs often have lending fees up to 2%. In theory, you could get those 0.9%, but they would need to lend out most of your shares, most of the time.

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14

FYI: Swissquote new report on their securities lending (surprisingly transparent). Number one stock: Trump’s Media Group :roll_eyes:

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15

Security lending is used for short selling. In other words, people have been betting that Trump stocks will fall. I’m still not sure whether I want security lending or not. As I still don’t understand the risks enough, I’m not using it at the moment. Have you activated leding?

16

No, the return is too small, and I don’t believe in a free lunch (i.e. the claimed zero risk).

But, SQ is pushing it quite hard, that’s why they send all these marketing material (recently even by paper mail), so at least someone must earn money here.

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17

Short selling is mostly a good thing IMO, as a market mechanism.

Don’t have the stomach to be doing myself, so not putting my money where my mouth is. :wink:

I have.

As I have the ability to live in a quantum superposition of (supposed) realities, I also agree with @1742.

The “return is too small” statement is possibly (probably even) true, but it seems hard to verify (either way). In essence there are too many variables and not enough transparency.

According to SQ I have currently

  • lent out mid six figures, across about 20 roughly equal sized positions
  • garnered about mid three figures in “return”, where 3/4 are associated with just one (unspectular) position ($MAIN)

I’ve thus made a return of 10 bps, over an unknown time frame, with an unknown lending rate for each position.

Conclusion: return cannot be computed.*

To be fair they – SQ – don’t** claim zero risk, but they do suggest in their promotional material that it’s essentially “risk free”.

* At least not with data easiliy available from SQ.
** FAQ excerpt: Bestehen Risiken oder Nachteile in Bezug auf die Wertpapierleihe?
Answer: Es gibt einige Risiken und Nachteile, welche die Wertpapierleihe zu einem ungeeigneten Instrument machen können. Hier eine zusammenfassende Liste:

  • Wenn Ihre Aktien ausgeliehen werden, verlieren Sie vorübergehend das Stimmrecht, beispielsweise anlässlich der Generalversammlung des Emittenten.
  • Auf ausgeliehene Wertpapiere könnten Sie Barzahlungen statt Dividenden erhalten.
  • Swissquote kann eventuell die verliehenen Wertpapiere nicht zurückgeben. In diesem Fall wird Sie Swissquote dank der Sicherheiten, die vorab für alle Leihen gestellt werden, entschädigen. Nähere Informationen finden Sie in den Besonderen Geschäftsbedingungen und dem Risikohinweis für die Wertpapierleihe.
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18

Now that I have to remember :wink:

True, their T&Cs briefly remark some risks, but even in the fineprint they make good use of the statement that they ensure >100% grade A collateral at all time. I seem to remember this little market dip some 15 years ago which was triggered by the melt down of an entire asset class that was supposedly fully collateralized, and that’s by far not the only example of useless collateral.

I take similar issue with their other marketing material. Their risk description on barrier reverse convertibles is equally questionable. I would hope this stuff is only pushed to qualified investors who understand what they are buying, but I must assume otherwise.

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