IBKR SYEP risks

[ebeb]

Hello Experts,

Recently, I received an email from IBKR:
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IBKR FYI: Stock Yield Enhancement Program
Dear Client,

You could earn up to USD 230 annually on fully-paid shares of stock held in your account by joining IBKR's Stock Yield Enhancement Program.
SYEP allows IBKR to borrow fully paid shares from you in exchange for US Treasury or cash collateral and lend the shares to short sellers who will pay to borrow them. Each day that your stock is on loan, you will be paid. You can sell your loaned stock with no restrictions.

The highest income-generating* stocks from lending are:

Symbol
Estimated Income
QQQ
USD 230


Stock lending involves risks. Information on SYEP and the risks associated with the program is available on our website.
*These figures are estimates which are calculated based on today’s SYEP rates and have not taken future market fluctuations into account. The income you can earn from SYEP may go down as well as up.
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I read somewhere that the dividends will go to the borrowers so reduce your income more than what you can earn in SYEP. Also what are the risks of losing money and is this worth it

[alex_686]

I read somewhere that the dividends will go to the borrowers so reduce your income more than what you can earn in SYEP. Also what are the risks of losing money and is this worth it

The risks are low. The gains are also fairly low. When I worked in mutual funds we did this all the time. Nice little juice to our performance.

If the shares are lent out you will not receive dividends, rather substitute payments. The cash flows are exactly the same, so nothing lost there. However dividends may have a "qualified" character for tax purposes while the substitute payments won't. So there will be a tax difference.

The risks of losing your shares are very low - sort of. This is kind of my day job. The safeguards around securities lending is robust. Historically, over the past 25 years or so, the worst that could happen is borrower goes bust and has to return the cash collateral to you. From a value perspective you are made whole. This is considered a sale so it might trigger capital gain taxes. You may be out of the market for a few days.

[ebeb]

The risks are low. The gains are also fairly low. When I worked in mutual funds we did this all the time. Nice little juice to our performance.

Thanks for the info, guess will give it a try for some free extra juice or some nice dinner

[Tabulator]

Any advice on using the Stock Yield Enhancement Program (SYEP) for short-term cash?

I am wondering if this might work well for a family member of mine. Currently she has too much cash in a bank account with no interest being earned. I suggested SGOV and XHLF to her. When she uses one of these ETF products at Interactive Brokers, would it make sense to enroll in SYEP for extra juice?

Would it make sense to select the ETF, in the first place, based on how well it will work with SYEP?

[alex_686]

Any advice on using the Stock Yield Enhancement Program (SYEP) for short-term cash?

I am wondering if this might work well for a family member of mine. Currently she has too much cash in a bank account with no interest being earned. I suggested SGOV and XHLF to her. When she uses one of these ETF products at Interactive Brokers, would it make sense to enroll in SYEP for extra juice?

Would it make sense to select the ETF, in the first place, based on how well it will work with SYEP?

Who is going to pay to borrow these securities to short sell? I suspect you will earn nothing.

[muffins14]

Any advice on using the Stock Yield Enhancement Program (SYEP) for short-term cash?

I am wondering if this might work well for a family member of mine. Currently she has too much cash in a bank account with no interest being earned. I suggested SGOV and XHLF to her. When she uses one of these ETF products at Interactive Brokers, would it make sense to enroll in SYEP for extra juice?

Would it make sense to select the ETF, in the first place, based on how well it will work with SYEP?

I do not think it makes sense to select an ETF based on expected share lending. Share lending happens infrequently at best. Choose your allocation and stick with it.

I use share lending on about 1.3M and it gets me maybe $500-800 per year, and that’s it.

So many people hold VTI, ITOT, VXUS etc that you are going to get peanuts for lending it, if it ever happens. I’ve had more returns from FNDA or FNDC, where maybe I lend out 100k at 8-12% for 3-10 days a few times a year, but that’s it.

[Tabulator]

Thanks for the replies. Here's my follow-up question: Is the expected benefit, in this situation, from using short-term bonds so minimal that it's actually a better option to not enroll at all?

[muffins14]

Thanks for the replies. Here's my follow-up question: Is the expected benefit, in this situation, from using short-term bonds so minimal that it's actually a better option to not enroll at all?

I personally don’t see a serious downside to doing it for stock ETFs. I don’t understand who would be shorting a bond ETF though. I imagine you would almost never do any lending on SGOV, but Ive never tried.

If you want the bonds in SGOV, hold SGOV. But don’t hold SGOV just because you think you will make a lot of money from share lending.

[alex_686]

Thanks for the replies. Here's my follow-up question: Is the expected benefit, in this situation, from using short-term bonds so minimal that it's actually a better option to not enroll at all?

Risk is super low. Benefit for the average stocks the Bogleheads is lower. I am personally guessing that the benefits on cash equivalents have to be somewhere between nil and zero.

So my basic argument is that the cost of time to sign the document is higher than the benefit.