Which brokerage share securities lending profits?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
vu8
Posts: 354
Joined: Tue May 29, 2018 10:15 am
Location: Columbus, Ohio

Which brokerage share securities lending profits?

Post by vu8 » Tue Feb 12, 2019 11:20 am

Hi there, I know that IB shares 50% of the profits from securities lending with the owners of the securities. It's a tiny amount of money but it's still better than being shared nothing from security lending profits. What other brokerages share securities lending profits besides IB? Does Robinhood, TradeStation, Matador and Charles Schwab lend out your securities?

Jack FFR1846
Posts: 10339
Joined: Tue Dec 31, 2013 7:05 am
Location: 26 miles, 385 yards west of Copley Square

Re: Which brokerage share securities lending profits?

Post by Jack FFR1846 » Tue Feb 12, 2019 11:29 am

Lots of talk here has discussed the securities lending of Vanguard, Schwab and Fidelity. In Fidelity's case, it uses the profits to keep its Zero funds ERs at Zero. In a sense, that's sharing. I believe Vanguard puts it back into the fund, which works its way into reducing ER.

I think the short answer to your question is probably: everyone.
Bogle: Smart Beta is stupid

Topic Author
vu8
Posts: 354
Joined: Tue May 29, 2018 10:15 am
Location: Columbus, Ohio

Re: Which brokerage share securities lending profits?

Post by vu8 » Tue Feb 12, 2019 11:53 am

Jack FFR1846 wrote:
Tue Feb 12, 2019 11:29 am
Lots of talk here has discussed the securities lending of Vanguard, Schwab and Fidelity. In Fidelity's case, it uses the profits to keep its Zero funds ERs at Zero. In a sense, that's sharing. I believe Vanguard puts it back into the fund, which works its way into reducing ER.

I think the short answer to your question is probably: everyone.
I see exactly what you're saying. What I mean here is not the security lending of the Fund itself, I mean the security lending of your ETF and Stocks owned, being lent out by your brokerages for people who would short these securities. IB shares 50% of profits from the people who borrow ETF and stocks and short them, but I"m not familiar with others.

riverguy
Posts: 496
Joined: Sun May 23, 2010 10:33 pm

Re: Which brokerage share securities lending profits?

Post by riverguy » Tue Feb 12, 2019 12:12 pm

Why would you even care about this? It's extremely tiny like you said. Basically 0 in most cases. Even if you find out places that share, what are you going to do? Switch brokers for it? Seems crazy.

jminv
Posts: 982
Joined: Tue Jan 02, 2018 10:58 pm

Re: Which brokerage share securities lending profits?

Post by jminv » Tue Feb 12, 2019 1:40 pm

vu8 wrote:
Tue Feb 12, 2019 11:20 am
Hi there, I know that IB shares 50% of the profits from securities lending with the owners of the securities. It's a tiny amount of money but it's still better than being shared nothing from security lending profits. What other brokerages share securities lending profits besides IB? Does Robinhood, TradeStation, Matador and Charles Schwab lend out your securities?
It sounds like you have a misconception regarding securities lending since it seems like you think you are missing out on something when you're not.

If you're invested in only ETFs, the securities lending that the ETF company does goes on inside the ETF, ie, the securities making up the ETF, not the ETF itself. That's the ETF company and they do often pass on part of the fees in the form of lower ERs but they don't share the proceeds directly with you - it won't be part of IB's program, for example. Your broker, has nothing to pass on. If you held these ETFs at IB and had securities lending on, you would still not be receiving anything from the ETF company's security lending activities.

Your own ETF holdings are not lent out by your broker without your permission. You are missing out on nothing. If you want to lend out your own ETF holdings, then you can do so and perhaps earn something for it but you likely won't. If it's not a hard to borrow ETF you 1.) won't earn much if the ETF is borrowed and 2.) chance of it being borrowed is low.

The money in securities lending for an individual investor comes if you are holding hard to borrow stocks, not ETFs. You need something that people frequently borrow and which is in short supply. There are downsides as well as you will receive cash collateral but could have difficulty getting the stock back if there's a broker failure. You will often also receive payments in lieu of dividends that are taxed at ordinary income rates, rather than the qualified dividend rates. Most brokers promise to try their hardest to return the stock to you before the dividend date, but it's not guaranteed. It can easily cancel out the securities lending income by way of higher taxes.

IB is the one that advertises the most about it. E-trade, fidelity, and schwab also offer it if you're interested.

Post Reply