Tax consequences of IB Stock Yield Enhancement program?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun Dec 01, 2019 8:54 am

I am thinking about signing up for the IB stock lending program, and would like to be sure that there are no tax consequences. I read on one forum that dividends are payed in lieu, although in the IB FAQ it says that dividends are payed, and not in lieu.

Does anyone have experience with the program -- are there any consequences from a tax perspective; does the W8 look any different when you are lending out the stocks?

EDIT: I meant the form 1099.

cheers,
Sean
Last edited by sean.mcgrath on Sun Dec 01, 2019 9:25 am, edited 1 time in total.

AlohaJoe
Posts: 5399
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by AlohaJoe » Sun Dec 01, 2019 9:02 am

I've never received a payment in lieu. I always get dividends.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun Dec 01, 2019 9:14 am

Thanks, Joe. And it is indistinguishable on the W8?

AlohaJoe
Posts: 5399
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by AlohaJoe » Sun Dec 01, 2019 9:17 am

sean.mcgrath wrote:
Sun Dec 01, 2019 9:14 am
Thanks, Joe. And it is indistinguishable on the W8?
I don't live in America and haven't seen a W-8 in decades, so I have no idea.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun Dec 01, 2019 9:21 am

Ah. Ok, thanks.

EDIT: I meant 1099 form; was mixing them up.

tj
Posts: 2972
Joined: Thu Dec 24, 2009 12:10 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by tj » Sun Dec 01, 2019 9:26 am

What stocks are you lending? How much do you earn from lending?

AlohaJoe
Posts: 5399
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by AlohaJoe » Sun Dec 01, 2019 9:33 am

sean.mcgrath wrote:
Sun Dec 01, 2019 9:21 am
Ah. Ok, thanks.

EDIT: I meant 1099 form; was mixing them up.
They're normal dividends so...they look like normal dividends on a 1099-DIV. I guess I'm not sure what you're asking, exactly.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun Dec 01, 2019 9:36 am

tj wrote:
Sun Dec 01, 2019 9:26 am
What stocks are you lending? How much do you earn from lending?
IB has a program where they are authorized to lend your shares (e.g., for shorting). In my case it would be ETFs. They manage it and choose what/when/etc.

The return is not magnificent: about 0.02% of my assets per annum, if I calculate correctly. Still, it is free money, and would add almost 1% to my safe withdrawal amount forever :-)

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun Dec 01, 2019 9:38 am

AlohaJoe wrote:
Sun Dec 01, 2019 9:33 am
They're normal dividends so...they look like normal dividends on a 1099-DIV. I guess I'm not sure what you're asking, exactly.
Thanks, that is the answer I was looking for. The question stems from paranoia, due to some misinformation on a Dutch forum.

AlohaJoe
Posts: 5399
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by AlohaJoe » Sun Dec 01, 2019 9:45 am

tj wrote:
Sun Dec 01, 2019 9:26 am
What stocks are you lending? How much do you earn from lending?
I don't hold any stocks, only ETFs.

In that account I have EMGF, GSLC, IEMG, REET, RZV. I earn anywhere from $3 a month to $380 a month. But it depends massively on your portfolio size (obviously) and what you hold. I don't think my IEMG has ever been borrowed, for instance. What gets borrowed also changes substantially over time. From February to April EMGF was borrowed heavily. But no one has borrowed any of it since September.

AlohaJoe
Posts: 5399
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by AlohaJoe » Sun Dec 01, 2019 9:49 am

sean.mcgrath wrote:
Sun Dec 01, 2019 9:38 am
AlohaJoe wrote:
Sun Dec 01, 2019 9:33 am
They're normal dividends so...they look like normal dividends on a 1099-DIV. I guess I'm not sure what you're asking, exactly.
Thanks, that is the answer I was looking for. The question stems from paranoia, due to some misinformation on a Dutch forum.
It might have just been out of date. Another Boglehead poster mentioned problems with payments in lieu on IB. But his experience was from a few years ago, whereas mine is current. So it is possible they upgraded/fixed their systems. Or maybe he was just unlucky. I'm not sure IB guarantees you won't get payments in lieu in every single possible circumstance. My recollection is they just promise to make a best effort to avoid it. Presumably you can lend to someone and they can decide not to return it the next day. I'm not sure securities lending has deadlines like "it must be returned by Friday".

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun Dec 01, 2019 10:01 am

AlohaJoe wrote:
Sun Dec 01, 2019 9:49 am
It might have just been out of date.
Yes, someone else on the forum mentioned that it had changed; and now the IB site explicitly states that all are paid as dividends. I just wanted to double check with someone who had actual experience.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun Dec 01, 2019 10:06 am

AlohaJoe wrote:
Sun Dec 01, 2019 9:45 am
In that account I have EMGF, GSLC, IEMG, REET, RZV. I earn anywhere from $3 a month to $380 a month. But it depends massively on your portfolio size (obviously) and what you hold. I don't think my IEMG has ever been borrowed, for instance. What gets borrowed also changes substantially over time. From February to April EMGF was borrowed heavily. But no one has borrowed any of it since September.
Hmm, it looks like their message "Positions that may be eligible for Stock Yield. Potential for additional annualized income of xxx" on the activity statement varies wildly by month. It could be more income than I'd realized: the estimated additional income for October was 9x November.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun Dec 01, 2019 10:16 am

Hmm, when I go into my account settings to sign up, there is this in the IB Fully Paid Securities Lending Program Disclosure:
Potential Adverse Tax Consequences from Receiving Cash Payments in Lieu of Dividends on Loaned Shares 1

When you lend your Fully-Paid Securities, you are entitled to receive the amount of all dividends and distributions made on or in respect of the loaned securities. However, these cash payments may be considered "in lieu of" dividends. If you are a U.S. taxpayer, cash payments in lieu of dividends do not qualify for the same tax treatment as "qualified dividends" and are taxed as normal ordinary income (up to 39.6%) instead of the preferential qualified dividend rate of 20% (U.S. federal income tax rates quoted here are for 2016 and are subject to change).

IB may be required to withhold tax on payments in lieu of dividends on U.S. and other country stocks and interest paid to you unless an exception applies. IB intends to treat the payments to you on the collateral under the program as interest although there can be no assurance the tax authorities will agree.

If you permit IB to borrow securities from you through the IB Stock Yield Enhancement Program and you are a U.S. taxpayer, IB may recall loaned shares from the borrower prior to a dividend, so as to reduce potential negative tax consequences to you. However, it is solely within IB's discretion to recall a loan and IB makes no guarantee it will recall a loan prior to a dividend. With respect to other corporate actions affecting loaned shares, non-cash distributions that you are entitled to receive in connection with ownership of loaned securities will be added to the loaned securities on the date of distribution and will be transferred to you at termination of the loan.

Special tax considerations may arise if shares of master limited partnerships or publicly traded partnerships are loaned out under the IB Stock Yield Enhancement Program or Self-Directed Fully-Paid Securities Lending Program. You are encouraged to consult the issuer's prospectus or your tax advisor for further information.
I'll give it a try anyway and see what happens this year.

tj
Posts: 2972
Joined: Thu Dec 24, 2009 12:10 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by tj » Sat Dec 14, 2019 11:55 am

AlohaJoe wrote:
Sun Dec 01, 2019 9:45 am
tj wrote:
Sun Dec 01, 2019 9:26 am
What stocks are you lending? How much do you earn from lending?
I don't hold any stocks, only ETFs.

In that account I have EMGF, GSLC, IEMG, REET, RZV. I earn anywhere from $3 a month to $380 a month. But it depends massively on your portfolio size (obviously) and what you hold. I don't think my IEMG has ever been borrowed, for instance. What gets borrowed also changes substantially over time. From February to April EMGF was borrowed heavily. But no one has borrowed any of it since September.
Do you have any costs to hold/ trade the etf's at IB ? Are you using Lite or Professional?

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Wed Mar 04, 2020 4:13 am

These are probably dumb questions but.......
- When you lend a security are you still owning it? Why would entities want to borrow my ETF when they could just buy it themselves on the market?
- What happens if the price of the security rises/falls significantly while it is being lent?
- Is there some way you lose/gain on price fluctuations while it is lent, or is it exactly the same as if you hadn't joined the SYEP?
- Re: the tax consequences IF dividends were to be paid in lieu..... what is the different tax treatment between an actual dividend and one paid in lieu?
Thanks....

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Fri Mar 06, 2020 5:40 pm

occambogle wrote:
Wed Mar 04, 2020 4:13 am
These are probably dumb questions but.......
- When you lend a security are you still owning it? Why would entities want to borrow my ETF when they could just buy it themselves on the market?
- What happens if the price of the security rises/falls significantly while it is being lent?
- Is there some way you lose/gain on price fluctuations while it is lent, or is it exactly the same as if you hadn't joined the SYEP?
- Re: the tax consequences IF dividends were to be paid in lieu..... what is the different tax treatment between an actual dividend and one paid in lieu?
Thanks....
Hi Occam,
I am definitely not an expert. They borrow the ETF in order to short it: they borrow it and immediately sell it; then they have to buy another one to return the loan at the end of the short period. They are hoping the second share is cheaper, of course.

In my opinion, during that period you don't actually own it; however, you don't see any difference re. losses/gains on your investment during that period. Re. in lieu: I was worried about tax consequences for capital gains and dividends paid in lieu (as the US has a tax treaty with the Netherlands that explicitly covers dividends, and I'm not sure whether it would cover in lieu). In the end I decided to go ahead without having 100% guarantees, as it seems to work fine. In the end, my conclusion: it is free money, but not much of it (only a percentage of shares get lent, typically paying me up to 1% interest during the lending period. In practice, my best guess is that it amounts to 0.2% additional return). I'm a bit on the fence about whether that is really worthwhile. I don't worry about getting paid back, as IB seems to have a robust process in place.


As to the mechanics, according to Interactive Brokers:

- Clients maintain full control of loaned shares with no impairment as to: Market exposure; The ability to sell at any time without prior notice; The representation of holdings in statements and the trading platform; and Cost basis.

However
- Loaned shares may not be protected by SIPC, however, the cash collateral received for the loaned securities is segregated within the 15c3-3 Reserve Account and therefore subject to the same investment restrictions;

- Proxy voting rights on loaned shares are forfeited (rights go to borrower);

- Loaned shares are typically used to facilitate short sales and such transactions may affect the value of shares.

And another FAQ.

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Wed Apr 15, 2020 10:09 am

Just curious.... I believe these securities are lent mostly for shorting etc... has all the recent high volatility led to some increased income for those particpating in this?

552BB
Posts: 160
Joined: Wed Mar 31, 2010 9:15 pm

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by 552BB » Wed Apr 15, 2020 10:51 am

Hello BH's,

I have just transferred to IB last week. They now have some of the lowest costs in the industry.


The Stock Yield Enhancement program was another feature that enticed me to make the move.

It is just another way of earning money on your money. Not much, but it gets added to the revenue side and not the cost side.

That is a plus for me.

It seems like a great idea.

I will learn more in the days and weeks to come. :beer

If I can add to this thread in a positive way, I will post what I learn.



Thanks Bogleheads,

:sharebeer

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Thu Apr 30, 2020 8:11 am

Is there any place in Client Portal (or other interfaces) to see if your securities are being lent? Or you have to wait until end of month?

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Thu Apr 30, 2020 12:29 pm

occambogle wrote:
Wed Apr 15, 2020 10:09 am
Just curious.... I believe these securities are lent mostly for shorting etc... has all the recent high volatility led to some increased income for those particpating in this?
Yes, if I look at Jan-Feb vs. Mar-April, activity is up 50%. I have some value ETFs that have been getting hammered, and have also been lent a lot. FNDF (large, intl fundamental) was being lent out at above 5%. Before that the high rates were in the 2% range.

Again, realize that this is earning me virtually nothing: for March/April I received a two month return of 0.04%. I am considering stopping the program simply because it makes my statements too long :P

So far, my rationale for keeping it is that an assumed 0.2% steady annual return on top of a 4% SWR (as a reference) means I can increase my withdrawal rate by 5%. Not life-changing, but a bit above noise level.

occambogle wrote:
Thu Apr 30, 2020 8:11 am
Is there any place in Client Portal (or other interfaces) to see if your securities are being lent? Or you have to wait until end of month?
Yes, I can run date range reports and see all the details: what is lent, how much, at what rate. So I can see up to the previous day.

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Fri May 01, 2020 1:19 am

sean.mcgrath wrote:
Thu Apr 30, 2020 12:29 pm
Again, realize that this is earning me virtually nothing: for March/April I received a two month return of 0.04%. I am considering stopping the program simply because it makes my statements too long :P
Thanks you for your reply... Yeah, that's not much. But still free money. When you say "I am considering stopping the program simply because it makes my statements too long :P" is that a joke? What I mean is... it doesn't actually complicate anything tax-wise right? It's just a little more interest income right?
sean.mcgrath wrote:
Thu Apr 30, 2020 12:29 pm
Yes, I can run date range reports and see all the details: what is lent, how much, at what rate. So I can see up to the previous day.
Could you kindly explain how exactly to do this? I'm familiar with how to create custom reports... but I can't work out which data points or categories one should select to see the SYEP information?

EDIT: I think I worked it out... Is it the categories "Borrow/Loan fees" and "Borrow/Loans"? I made $2.87 in the last couple days... going out to celebrate :-)

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Fri May 01, 2020 2:03 am

occambogle wrote:
Fri May 01, 2020 1:19 am
When you say "I am considering stopping the program simply because it makes my statements too long :P" is that a joke? What I mean is... it doesn't actually complicate anything tax-wise right? It's just a little more interest income right?
sean.mcgrath wrote:
Thu Apr 30, 2020 12:29 pm
Yes, I can run date range reports and see all the details: what is lent, how much, at what rate. So I can see up to the previous day.
Could you kindly explain how exactly to do this?
The way I look at it is to go into the menu, "Reports/Tax Docs," click on the arrow for "Run Activity," and choose the period "custom date range." When I run that report and "expand all," one of the sections is "IBKR Managed Securities Lent Interest Details (Stock Yield Enhancement Program)." That shows me the detail in the period.

This is the report that is getting long, and yes I was serious (but unlikely to act on it). So nothing to do with taxes. As far as I can see, it will not complicate my taxes at all, as the 1099 Div will stay the same (my original question). This Activity report now has three different sections about the program, listing every loan. It has quadrupled the size of the report, which is mildly annoying.

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Fri May 01, 2020 2:33 am

sean.mcgrath wrote:
Thu Apr 30, 2020 12:29 pm
The way I look at it is to go into the menu, "Reports/Tax Docs," click on the arrow for "Run Activity," and choose the period "custom date range." When I run that report and "expand all," one of the sections is "IBKR Managed Securities Lent Interest Details (Stock Yield Enhancement Program)." That shows me the detail in the period.
Ah OK. What I did is to create a Custom Statement and in that selected only the sections:
Borrow/Loan Fees
Borrows/Loans
Payment in lieu of dividends
Then I can run that custom statement with whatever time period
sean.mcgrath wrote:
Thu Apr 30, 2020 12:29 pm
This is the report that is getting long, and yes I was serious (but unlikely to act on it). So nothing to do with taxes. As far as I can see, it will not complicate my taxes at all, as the 1099 Div will stay the same (my original question).
Cool... Thanks.

annu
Posts: 704
Joined: Mon Nov 04, 2019 7:55 pm

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by annu » Fri May 01, 2020 2:51 am

So what are the risks? I know its 002%, but still there is money, and there is nothing free in this world......
Also why do they need so much information to be able to create an account?

For each account holder, you will need:


US Social Security Number or ID number if not a US citizen (Driver's License, Alien Identification Card, Passport or National Identity Card).
Your employer name, address and phone number.
Bank or third-party broker account numbers for funding purposes, plus routing number for check deposits.
Estimated Net Worth (excluding value of residence).
Estimated Liquid Net Worth (excluding value of residence).
Annual Net Income.
Total Assets.

I get some fo them, but others are very new to me....

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Fri May 01, 2020 6:51 am

Just in case useful for anyone else... I discovered to be eligible for SYEP the account needs to have $50k minimum. And if you have multiple accounts e.g. taxable and IRAs then the minimum applies to each account separately, it is not spread across them.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Fri May 01, 2020 7:42 am

annu wrote:
Fri May 01, 2020 2:51 am
So what are the risks? I know its 002%, but still there is money, and there is nothing free in this world......
Also why do they need so much information to be able to create an account?
I don't think there are any risks except very theoretical. The way I look at it, I am getting compensated for someone using an underutilized asset. A bit like airBnB: I have an ETF that I'm not doing anything with, and a short-seller would like to borrow it. He pays me a small fee for the privilege.

I have no idea why they ask all that stuff. Since 9/11, financial institutions have become incredibly nosy.

annu
Posts: 704
Joined: Mon Nov 04, 2019 7:55 pm

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by annu » Fri May 01, 2020 6:29 pm

Possible to know before investing how much money you can make based on your portfolio. I own intel, google shares for e.g., possible to know if I can make some money?

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sat May 02, 2020 11:45 am

annu wrote:
Fri May 01, 2020 6:29 pm
Possible to know before investing how much money you can make based on your portfolio. I own intel, google shares for e.g., possible to know if I can make some money?
No. It all depends on how many people want to short them. I am certain that you will make some money with those shares, but no idea how much / often. Of my six ETFs at IB, five were lent out in April.

I wanted to find out whether, among similar ETFs, one is shorted more often than another, but did not find an easy way to get the information.

saver007
Posts: 166
Joined: Fri Nov 07, 2014 9:18 pm

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by saver007 » Sat May 02, 2020 4:07 pm

You can use below website for some indications on market borrow fee rate and availability. It's very hard on predict if your stock/ETFs will be lend out a given day. The lower the availability the better chances of your stock will be lent out.

https://iborrowdesk.com/

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sun May 03, 2020 1:18 am

saver007 wrote:
Sat May 02, 2020 4:07 pm
You can use below website for some indications on market borrow fee rate and availability. It's very hard on predict if your stock/ETFs will be lend out a given day. The lower the availability the better chances of your stock will be lent out.

https://iborrowdesk.com/
That is really helpful -- thanks, saver. My objective is to compare demand for, say, VTI vs. ITOT to see whether one is the "default" option for a specific type of ETF. This is what I was looking for.

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Mon Jun 01, 2020 5:26 am

Well I had SYEP turned on for all of May and it earned me $17.14 on about a 70k investment.
So that's ummm... pretty small... but it feels like free money.
I hold NTSX, VXUS, and EDV. EDV was never lent out at all. VXUS was loaned out at least half the days, but earns IB only 1% and you 0.5%. NTSX was only loaned out 4 days but earns IB 7.5% and you 3.75%... so despite the infrequent lending it accounted for at least 2/3rds of the interest received.
Why anyone would short NTSX is beyond me, because it's a very small and balanced fund... but I don't understand these things.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Mon Jun 01, 2020 5:46 am

occambogle wrote:
Mon Jun 01, 2020 5:26 am
Well I had SYEP turned on for all of May and it earned me $17.14 on about a 70k investment.
So that's ummm... pretty small... but it feels like free money.
Yes, that seems about right: somewhere around 0.3% return. The way I look at it, assuming the 0.3% holds steady (which I doubt, I think it is high now due to all the volatility) and in retirement I withdraw 3% after taxes, this will let me withdraw an extra 10% indefinitely. That's not too bad.

My Value ETFs got shorted a ton in the previous months, and it turned out that they were right. :annoyed

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Tue Jun 16, 2020 3:15 pm

A minor update: it turns out you can add the short selling fee (%) for your holdings as a field in the IB app. It's sort of fun to see what the market demand is on betting that my ETF will go down (but no, I don't do anything with the information).

Right now it will cost you 5.94% to short FNDF, but only 0.72% to short ITOT.

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Tue Jun 16, 2020 3:32 pm

sean.mcgrath wrote:
Tue Jun 16, 2020 3:15 pm
A minor update: it turns out you can add the short selling fee (%) for your holdings as a field in the IB app. It's sort of fun to see what the market demand is on betting that my ETF will go down (but no, I don't do anything with the information).

Right now it will cost you 5.94% to short FNDF, but only 0.72% to short ITOT.
Yes I found that too. You can do the same in Client Portal. My AVDV will cost you a whopping borrow rate of 19.15% today, and someone actually borrowed my shares yesterday. I'll surely be able to retire soon off this :-)
One thing that's odd though, when I run a report to show SYEP in the section "IBKR Managed Securities Lent Activity" it's showing some stuff lent and returned in June, but in the section "IBKR Managed Securities Lent Interest Details" it's only showing items up to the end of May. Is that by chance the same for you?
EDIT - Seems it was just a temporary issue and is now showing.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Wed Jun 17, 2020 2:10 am

occambogle wrote:
Tue Jun 16, 2020 3:32 pm
Yes I found that too. You can do the same in Client Portal. My AVDV will cost you a whopping borrow rate of 19.15% today, and someone actually borrowed my shares yesterday. I'll surely be able to retire soon off this :-)
One thing that's odd though, when I run a report to show SYEP in the section "IBKR Managed Securities Lent Activity" it's showing some stuff lent and returned in June, but in the section "IBKR Managed Securities Lent Interest Details" it's only showing items up to the end of May. Is that by chance the same for you?
EDIT - Seems it was just a temporary issue and is now showing.
Wow, I've never had a rate anywhere near that. This is why I wanted a way to look at the list -- I'd love to know which are the "go to" short ETF's in different classes.

Assuming they know something, you are in for a wild ride with AVDV. :D

annu
Posts: 704
Joined: Mon Nov 04, 2019 7:55 pm

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by annu » Wed Jun 17, 2020 2:20 am

Is'nt there a risk in lending, it is not insured, besides IB being the borrower and unless they go under, that is all the insurance?

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Wed Jun 17, 2020 2:25 am

annu wrote:
Wed Jun 17, 2020 2:20 am
Is'nt there a risk in lending, it is not insured, besides IB being the borrower and unless they go under, that is all the insurance?
Hi annu,
I believe there is a theoretical risk, but the short-seller has to put up cash that is segregated at IB.


As I posted above:
sean.mcgrath wrote:
Fri Mar 06, 2020 5:40 pm
As to the mechanics, according to Interactive Brokers:

- Clients maintain full control of loaned shares with no impairment as to: Market exposure; The ability to sell at any time without prior notice; The representation of holdings in statements and the trading platform; and Cost basis.

However
- Loaned shares may not be protected by SIPC, however, the cash collateral received for the loaned securities is segregated within the 15c3-3 Reserve Account and therefore subject to the same investment restrictions;

And another FAQ.
I think the risk is similar to having assets at a broker to begin with. I.e., extremely small.

AlohaJoe
Posts: 5399
Joined: Mon Nov 26, 2007 2:00 pm
Location: Saigon, Vietnam

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by AlohaJoe » Wed Jun 17, 2020 2:30 am

occambogle wrote:
Tue Jun 16, 2020 3:32 pm
sean.mcgrath wrote:
Tue Jun 16, 2020 3:15 pm
A minor update: it turns out you can add the short selling fee (%) for your holdings as a field in the IB app. It's sort of fun to see what the market demand is on betting that my ETF will go down (but no, I don't do anything with the information).

Right now it will cost you 5.94% to short FNDF, but only 0.72% to short ITOT.
Yes I found that too. You can do the same in Client Portal. My AVDV will cost you a whopping borrow rate of 19.15% today, and someone actually borrowed my shares yesterday. I'll surely be able to retire soon off this :-)
Some rates I've seen (looking over past statements): MFDX 8.37%, REET 9.13%, SMLF 16.82%, EMGF 8.20%, GSLC 6.06%. In general, the more AUM the lower the borrow rate you'll get since there are so many shares out there floating around. That said, I've also owned some tiny funds (RZV) that had very low borrow costs (2%). So small size alone is no guarantee of a high borrow fee.
annu wrote:
Wed Jun 17, 2020 2:20 am
Is'nt there a risk in lending, it is not insured, besides IB being the borrower and unless they go under, that is all the insurance?
Whoever is borrowing your shares has to pay collateral. It shows how much in the IBKR statement. It'll say something like "REET 2020-05-25 New Loan Allocation -4,326 shares $86,520 collateral." If they don't pay it back you get to keep the collateral of $86,520.

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Wed Jun 17, 2020 2:35 am

sean.mcgrath wrote:
Wed Jun 17, 2020 2:10 am
Wow, I've never had a rate anywhere near that. This is why I wanted a way to look at the list -- I'd love to know which are the "go to" short ETF's in different classes.
Assuming they know something, you are in for a wild ride with AVDV. :D
I don't think higher rates are actually an indication of risk, it's more a question of the ease of availability of shares to borrow and for smaller funds with low AUM like AVDV, I guess they are necessarily harder to borrow.

Image

Value Date Symbol Quantity Collateral Amount Interest Rate Earned by IB (%) Interest Paid to IB Interest Rate on Customer Collateral (%) Interest Paid to Customer
2020-06-15 AVDV -172 7,912.00 17.36 3.82 8.68 1.91

So that's a whole $1.91.... hmm, early retirement may have to be postponed :-)

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Wed Jun 17, 2020 3:51 am

AlohaJoe wrote:
Wed Jun 17, 2020 2:30 am
Some rates I've seen (looking over past statements): MFDX 8.37%, REET 9.13%, SMLF 16.82%, EMGF 8.20%, GSLC 6.06%. In general, the more AUM the lower the borrow rate you'll get since there are so many shares out there floating around. That said, I've also owned some tiny funds (RZV) that had very low borrow costs (2%). So small size alone is no guarantee of a high borrow fee.
Thanks, interesting. I'm sure expected volatility is the other variable driving rates. I might poke around a bit on your observation: that would say, for a given class of ETFs, I might get a small (tiny multiplied by even more tiny) advantage to picking the one with the smallest AUM assuming the ERs are the same. Hard to imagine this is worth my time, but it does have me curious.

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Wed Jun 17, 2020 4:20 am

sean.mcgrath wrote:
Wed Jun 17, 2020 3:51 am
Thanks, interesting. I'm sure expected volatility is the other variable driving rates. I might poke around a bit on your observation: that would say, for a given class of ETFs, I might get a small (tiny multiplied by even more tiny) advantage to picking the one with the smallest AUM assuming the ERs are the same. Hard to imagine this is worth my time, but it does have me curious.
I can't think volatility is a factor... TQQQ, a triple-leveraged Nasdaq ETF has a quarter of the borrow rate of NTSX. I think it's just a question of availability of shares available to lend.
I wouldn't for a second choose an ETF for the potential in SYEP, the SYEP return is miniscule. It's more like those sweet jars on the counter when you leave a restaurant... Yes, free sweets! And it's better than no sweets. But I wouldn't choose the restaurant based on them....

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Wed Jun 17, 2020 4:28 am

occambogle wrote:
Wed Jun 17, 2020 4:20 am
I wouldn't for a second choose an ETF for the potential in SYEP, the SYEP return is miniscule. It's more like those sweet jars on the counter when you leave a restaurant... Yes, free sweets! And it's better than no sweets. But I wouldn't choose the restaurant based on them....
Yep, agree.

occambogle wrote:
Wed Jun 17, 2020 4:20 am
I can't think volatility is a factor... TQQQ, a triple-leveraged Nasdaq ETF has a quarter of the borrow rate of NTSX. I think it's just a question of availability of shares available to lend.
Expectations of volatility or Bearish sentiments has to drive demand when we're talking about ETFs. You can see it happen with the current COVID turbulence. Given the AUM is more or less constant, what do you think drives the large swings in the rates to short a specific ETF?

occambogle
Posts: 383
Joined: Thu Dec 12, 2019 4:58 am

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by occambogle » Wed Jun 17, 2020 5:59 am

sean.mcgrath wrote:
Wed Jun 17, 2020 4:28 am
Given the AUM is more or less constant, what do you think drives the large swings in the rates to short a specific ETF?
No idea I'm afraid. But the day that AVDV got shorted it rose more than 2%... so I'm not going to follow the shorter's sentiment :-)

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Wed Jun 17, 2020 9:06 am

occambogle wrote:
Wed Jun 17, 2020 5:59 am
No idea I'm afraid. But the day that AVDV got shorted it rose more than 2%... so I'm not going to follow the shorter's sentiment :-)
I didn't say they were right, just that they expect it. I've seen a study that says they don't do any better job predicting the market than any other stock pickers. :)

Anyway, I think they like volatility and may not always care if it goes up or down at the end of a day -- as long as there are wild swings, they can reverse the short at the right moment.

cowbman
Posts: 163
Joined: Sat Jan 14, 2017 2:10 pm

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by cowbman » Sat Jun 20, 2020 12:53 pm

occambogle wrote:
Wed Jun 17, 2020 2:35 am
sean.mcgrath wrote:
Wed Jun 17, 2020 2:10 am
Wow, I've never had a rate anywhere near that. This is why I wanted a way to look at the list -- I'd love to know which are the "go to" short ETF's in different classes.
Assuming they know something, you are in for a wild ride with AVDV. :D
I don't think higher rates are actually an indication of risk, it's more a question of the ease of availability of shares to borrow and for smaller funds with low AUM like AVDV, I guess they are necessarily harder to borrow.

Image

Value Date Symbol Quantity Collateral Amount Interest Rate Earned by IB (%) Interest Paid to IB Interest Rate on Customer Collateral (%) Interest Paid to Customer
2020-06-15 AVDV -172 7,912.00 17.36 3.82 8.68 1.91

So that's a whole $1.91.... hmm, early retirement may have to be postponed :-)
Where do you go to find the table of rates? I don't have an IB account yet, but I'd like to check the rates on few securities.

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Sat Jun 20, 2020 2:28 pm

cowbman wrote:
Sat Jun 20, 2020 12:53 pm
Where do you go to find the table of rates? I don't have an IB account yet, but I'd like to check the rates on few securities.
saver007 wrote:
Sat May 02, 2020 4:07 pm
You can use below website for some indications on market borrow fee rate and availability. It's very hard on predict if your stock/ETFs will be lend out a given day. The lower the availability the better chances of your stock will be lent out.

https://iborrowdesk.com/

cowbman
Posts: 163
Joined: Sat Jan 14, 2017 2:10 pm

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by cowbman » Wed Jun 24, 2020 11:22 am

sean.mcgrath wrote:
Sat Jun 20, 2020 2:28 pm
cowbman wrote:
Sat Jun 20, 2020 12:53 pm
Where do you go to find the table of rates? I don't have an IB account yet, but I'd like to check the rates on few securities.
saver007 wrote:
Sat May 02, 2020 4:07 pm
You can use below website for some indications on market borrow fee rate and availability. It's very hard on predict if your stock/ETFs will be lend out a given day. The lower the availability the better chances of your stock will be lent out.

https://iborrowdesk.com/
So, if the % is very low, such as VTI, you have little chance of it being leant out?

Topic Author
sean.mcgrath
Posts: 349
Joined: Thu Dec 29, 2016 6:15 am
Location: US in NL

Re: Tax consequences of IB Stock Yield Enhancement program?

Post by sean.mcgrath » Wed Jun 24, 2020 11:27 am

cowbman wrote:
Wed Jun 24, 2020 11:22 am
So, if the % is very low, such as VTI, you have little chance of it being leant out?
I assume it does reflect supply vs. demand, but IB lends out proportionally to everyone in the program, so even my ITOT has been lent. The amount you earn on the low % ones is trivial, however.

Post Reply