Investrade’s Fully Paid Lending Program allows eligible investors to earn additional income by lending certain fully paid securities they already own while maintaining economic ownership and the ability to sell positions at any time. This article explains how fully paid securities lending works, who may be eligible, how income is calculated and credited and the key risks and tradeoffs to understand (including voting rights, dividend treatment, and SIPC considerations) before enrolling. Next step: Submit the Fully Paid Lending Application and Agreement to Investrade customer support to enroll and begin participating when eligible demand exists.
Investrade’s Fully Paid Lending Program allows investors to earn additional income by lending certain securities they already own within their portfolio. Through this fully paid lending program, eligible securities may be loaned to meet demand in the securities lending market while investors continue to maintain ownership of their long equity positions.
There are no fees associated with participation, and all operational aspects of the securities lending program are handled on the investor’s behalf. The program is designed to help investors generate incremental income from fully paid securities that might otherwise remain idle.
Earn Income While Maintaining Ownership of Your Equity Positions
When securities are enrolled in the Fully Paid Lending Program, investors retain economic ownership of their positions. Shares can be sold at any time, even while they are on loan, allowing investors to maintain flexibility in managing their portfolios.
Income earned through fully paid securities lending is driven by demand in the securities lending market. Lending rates are not fixed and may vary based on the specific security, borrowing demand and broader market conditions.
How Securities Lending Works
How Securities Lending Works for Investors
The Fully Paid Lending Program is available to Cash accounts, IRA accounts and Margin accounts with a minimum total account value of $50,000. To participate, securities must be fully paid for and eligible for lending under the fully paid securities lending program.
In certain cases, excess-margin securities may also qualify. These are securities that have not been fully paid for but whose market value exceeds 140% of the customer’s margin debit balance. Eligibility is determined based on market demand, and not all securities will qualify at all times.
Enrollment in the Securities Lending Program
Investors can enroll by completing and submitting the Fully Paid Lending Application and Agreement to Investrade’s Customer Support team. Once approved, eligible securities in the account may be made available for lending when demand exists.
Enrollment does not require ongoing action from the investor after approval.
Participation and Account Requirements
There is no long-term commitment required to participate in the Fully Paid Lending Program. Investors may terminate their participation at any time by submitting a written request, at which point securities will no longer be loaned through the program.
How Securities Are Borrowed and Loaned
Hilltop Securities, Investrade’s clearing firm, may borrow eligible equity securities from participating accounts based on demand in the securities lending market. Loaned shares are commonly used to support activities such as short selling.
While shares are on loan, investors maintain ownership and retain the ability to sell their positions at any time. Hilltop Securities may also terminate a loan at its discretion depending on market conditions or borrowing demand.
How Fully Paid Securities Lending Generates Income
Investors earn income for each day their shares remain on loan through the fully paid lending program. Income is based on an annualized lending rate, which varies by security and over time. Lending income accrues daily and is credited to the investor’s account on a monthly basis.
The annualized lending rate represents a portion of the total interest earned on the loaned securities, with Hilltop Securities sharing lending revenue with the client.
Viewing Lending Income and Activity
Income earned through fully paid securities lending and related activity is reflected in the account’s transaction history. This allows investors to track participation and monitor income generated through the program over time.
Voting Rights, Dividends and Stock Ownership
While shares are on loan, investors forgo voting rights associated with those positions. Dividends paid on loaned shares are issued as cash in lieu of dividends rather than as standard dividend payments.
Hilltop Securities may attempt to avoid lending shares that are pending a dividend payment, but this is not guaranteed. Payments made as cash in lieu of dividends may be subject to different tax treatment than regular dividends. Investors should consult a tax advisor to understand potential implications.
Important Risks and Considerations of Fully Paid Securities Lending
As with any securities lending program, participation involves certain risks. Shares that are on loan are not protected by the Securities Investor Protection Corporation (SIPC). To mitigate this risk, Hilltop Securities maintains collateral equal to at least 100% of the loan value for securities on loan.
In the unlikely event of a clearing firm default, access to this collateral may be the primary source of recovery. Investors should carefully consider fully paid lending program risks before enrolling.
Lending rates are not guaranteed and may fluctuate based on demand. Not all securities will be eligible for lending, and loans may be terminated at any time due to market conditions or other factors.
Getting Started with the Fully Paid Securities Lending Program
Investors interested in participating can begin by completing the Fully Paid Lending Application and Agreement. Before enrolling, individuals should carefully review all program documentation, including the Master Securities Lending Agreement and the Risk Disclosures Statement, which outline important terms, risks and considerations associated with fully paid securities lending.
Investrade does not provide tax or legal advice. Investors should consult appropriate professionals to determine whether participation in the Fully Paid Lending Program aligns with their financial goals and circumstances.