The Securities Lending Program

Traditionally when you’re holding an investment, the stock or ETF will sit in your account while the underlying asset (usually the issuing company) makes you money through growth and dividends.

But what if you could put that stock to work?

With Questrade’s Securities Lending Program, you can.

The Securities Lending Program is a way for the average investor to make a bit of extra money off of the stocks they already have in their account. This is done through Fully Paid Securities Lending, or FPSL.

Think of it like real estate. If you have a property that is going to sit idle for a few months, you can AirBnB it for the period that you aren’t using it. 

The Securities Lending Program basically does the same thing with your held securities: it loans them out to investors who need them for advanced trading strategies for as long as they sit in your account.

You still own the shares and can sell them at any time through your trading platform, and dividends are still paid out to you. 

Who is borrowing these shares?

Borrowing shares is required for certain advanced trading strategies. The most common of these strategies is short selling, where an investor borrows and sells shares in hopes that the price will decline before they have to buy them back and return them.

Borrowers may also need the shares for more advanced reasons, like to fulfil contracts, meet obligations, or to leverage their voting rights.

Does short selling mean securities lending is harmful to the stock’s value?

Academic research has shown that stock lending does not have a significant negative impact on the value of the underlying security ¹. The shorting strategy is supposed to benefit when the price of a security goes down, not actively drive down the price. A short only lowers the share’s value as much as the sale of those shares. It is unlikely that a short-sale enabled by your securities will have a significant impact on the underlying price.

Anybody with a Questrade account can loan securities through the Securities Lending Program. All you need is a qualifying account type.

Currently only fully paid U.S. stocks and ETFs listed on one of the major exchanges are eligible. This means stocks and ETFs that are bought on margin are not eligible. We are also working to add Canadian securities into the program.

Securities that do not qualify can be held in the account, but only qualifying securities will be lent out.

Note: While your securities may be eligible to be loaned out, whether they are actually loaned depends on the demand for the stock.

For the most part, the Securities Lending Program is completely automated—once you’re signed up, we take care of the rest:

• We find borrowers
• We manage the payments and collateral
• We end the loan when you want to suspend lending for the share, end participation in the program, or sell your position

How do I opt in?

You can opt into the Securities Lending Program by logging in to your web platform and going to Management > Securities Lending.

You can check your settings by logging into your web platform and going to Management > Securities lending.

From here you can opt into the Securities Lending Program, check your program status, change your settings, or opt out.

You can also check reports and statistics by going to Reports > Lending confirmation

Here you can check which securities are currently on loan and keep track of securities lending transactions.

That’s all there is to it. When lending is enabled for a security, all qualifying shares will be automatically made available for loan at the start of the next business day.

Now that you know what the Securities Lending Program is and how it works, it’s time to get into the fun part: how you get paid.

Determining borrow rates

How much you make on a particular loan can vary depending on the security. It basically boils down to supply and demand: more demand raises the price, more supply lowers the price, and your earnings are where supply and demand meet.

Since the most common reason for borrowing is to short shares, volatile securities often have greater demand (and therefore higher lending rates) than stable counterparts, but even blue chip stocks have some level of demand.

While lending securities can be a great way to earn additional passive income, it does have some impact on your investments, each with their own work-around.

• You will not be able to vote with shares that are actively loaned out. Voting power is one of the reasons an investor might want to borrow your shares. If you wish to exercise the full voting rights of your holdings, you can temporarily exempt them from the Securities Lending Program before the vote to regain your voting rights.
• Lent shares will temporarily lose CIPF coverage. To compensate for this, we place a cash collateral to make sure you’re covered in the unlikely scenario that the shares are not returned.

For a full list of trade offs, please refer to the Securities Lending Program risk disclosure.

How the cash collateral works

Whenever a share is lent, we ensure that a cash collateral of 100% of the share’s value is placed in a secure third-party account. 

This collateral is updated daily to make sure that the collateral held for your shares keeps up with the previous day’s growth of the security value. This means you’re still covered no matter how long the security is borrowed.

You can opt into the Securities Lending Program by logging in to the web platform and going to Management > Securities lending.

If you want to learn more about how the Securities Lending Program works, check out our Securities Lending Program FAQ.

Not a Questrade customer yet? Click below to open an account today and enjoy the benefits of this exciting program.

Note: The information in this blog is for educational purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied, is made by Questrade, Inc., its affiliates or any other person to its accuracy.