The brokerage firm I just joined (Firstrade) has a 'Securities Lending Income Program'.
I was just wondering if anyone has used such a service and how they found it?
Securities Lending Income Program
Re: Securities Lending Income Program
I believe there are tax issues...
Instead of dividends, you receive a payment that is taxed at a higher rate.
You lose voting rights on your shares.
You cannot sell your shares while in the contract.
The shares are not necessarily protected under SEC.
If you are lending an asset you plan to hold long term, and are not afraid of losing dividends on, and will not need to sell in an emergency cash flow situation it might be worth looking into. As long as you are fine with enabling short sellers.
Someone more experienced though might have more insight on this though.
Instead of dividends, you receive a payment that is taxed at a higher rate.
You lose voting rights on your shares.
You cannot sell your shares while in the contract.
The shares are not necessarily protected under SEC.
If you are lending an asset you plan to hold long term, and are not afraid of losing dividends on, and will not need to sell in an emergency cash flow situation it might be worth looking into. As long as you are fine with enabling short sellers.
Someone more experienced though might have more insight on this though.
Re: Securities Lending Income Program
I saw the same thing with SBI （貸し株）
It's sold as making easy money on your investments, I assume by letting the broker lend them out to short-sellers. But last time I looked into it, you were losing the protection you usually have if the broker becomes insolvent. I can't remember the details, but decided it wasn't worth it in my case, at least.
It's sold as making easy money on your investments, I assume by letting the broker lend them out to short-sellers. But last time I looked into it, you were losing the protection you usually have if the broker becomes insolvent. I can't remember the details, but decided it wasn't worth it in my case, at least.
Re: Securities Lending Income Program
Thanks for your answers,
I looked into a bit more and read the following on the company disclosure:
- Cash payments are received in lieu of dividends.
- If you are a U.S. taxpayer, cash payments in lieu of dividends are not the same as qualified dividends for tax purposes and are taxed as normal ordinary income (up to 39.6%) instead of the preferential qualified dividend rate of 20%.
- If you are not a U.S. taxpayer, the holding company may be required to withhold tax on payments in lieu of dividends and loan fees to you at 30% unless an exception applies (so this would be 10% under the Japan/US Tax Treaty tax on dividends?)
- You can sell your stock at any time. It just terminates the loan agreement you have on it.
- The scheme is not protected by the SIPC. If one of your stocks is loaned out, the company holds collateral for you to secure the loan of the stock. This is calculated at 102% of the daily stock value and rounded up to the nearest dollar. This is the only possible way of getting anything back if they fail to return the stock for any reason.
Although if they are going bankrupt for any reason and can't return the securities, I'm not sure how they'd be able to return a cash equivalent.
Doesn't seem worth the risk.
I looked into a bit more and read the following on the company disclosure:
- Cash payments are received in lieu of dividends.
- If you are a U.S. taxpayer, cash payments in lieu of dividends are not the same as qualified dividends for tax purposes and are taxed as normal ordinary income (up to 39.6%) instead of the preferential qualified dividend rate of 20%.
- If you are not a U.S. taxpayer, the holding company may be required to withhold tax on payments in lieu of dividends and loan fees to you at 30% unless an exception applies (so this would be 10% under the Japan/US Tax Treaty tax on dividends?)
- You can sell your stock at any time. It just terminates the loan agreement you have on it.
- The scheme is not protected by the SIPC. If one of your stocks is loaned out, the company holds collateral for you to secure the loan of the stock. This is calculated at 102% of the daily stock value and rounded up to the nearest dollar. This is the only possible way of getting anything back if they fail to return the stock for any reason.
Although if they are going bankrupt for any reason and can't return the securities, I'm not sure how they'd be able to return a cash equivalent.
Doesn't seem worth the risk.