Program overview
You can earn extra income by participating in GPS's Stock Yield Enhancement Program with the shares fully paid in your account. This program allows GPS to borrow shares from you as cash collateral and then lend the shares to traders who wish to short the shares and are willing to pay interest on the loans.
For each day the stock is lent out, the cash collateral deposited into your account will receive interest based on the market rate.
GPS will pay you 50% of its borrowing proceeds.
The program is available to eligible GPS clients, i.e. clients who have an approved margin account, or whose cash account equity exceeds $50,000 (or equivalent).
Advantage
Simple and automated
Pacific Securities manages all aspects of stock lending. Once you apply to participate, Pacific Securities will automatically check your portfolio of fully paid stocks. If you own a stock that is popular in the market for stock lending, IBKR will borrow the stock from you, deposit collateral into your account, and then lend the stock. It's that simple.
Full transparency
Once the shares are lent out, you will see the interest rate you received on the cash collateral and the amount of proceeds you received from the loan. Other brokers that offer similar programs usually don't open market rates to you, so they can give you a small percentage of the proceeds and take the lion's share themselves.
Earn extra money
For each day the shares are lent out, Pacific Securities will pay interest on the cash collateral directly to your account.
Trade your loaned shares without restrictions
You can see the borrowed shares in your account report. You are still the owner of the shares, which means that market risk remains and you will accept any gains or losses if the price of the shares fluctuates. You can sell your shares at any time without any restrictions. You may also withdraw from this program at any time and for any reason.
Example:
XYZ stock is currently trading at $75.00 per share. You are long 5,000 shares of XYZ stock with a market value of $375,000. There is a demand for XYZ stocks, and the required borrowing rate is 9%.
You participate in the Pacific Securities Company Stock Income Enhancement Program, and Pacific Securities Company lends you 5,000 shares of XYZ stock at an interest rate of 9%. Pacific Securities will pay 375,000 x 4.5% = 16,875.00 interest on the cash collateral.
This translates to an annual income of $16,875.00 from your current stock holdings.
Eligibility
The Stock Yield Enhancement Program is available to eligible GPS clients who hold a margin account, or who have cash account assets of $50,000 (or equivalent) or more.
To be eligible for lend, the shares must be "fully paid" (shares that are not held on margin) and "over-margin" stocks (shares held on margin but whose market value exceeds 140% of your margin debt balance).
Precautions and Risks
Loaned shares may not be protected by SIPC.
Loaned shares may not be protected by the Securities Investor Protection Act of 1970 ("SIPC"). This is why, under SEC regulations, GPS must provide you with a cash collateral equal to the value of the shares to protect you in the event that the shares may not be returned to you.
Lent shares are usually used for shorting.
Stocks are attractive in the stock lending market because other traders need to borrow stocks and sell them short, potentially having an impact on the value of the stock.
Borrowing rates change frequently.
These rates, and the interest you will receive, may fall (or rise) by 50% or more.
GPS can terminate the loan at any time.
Also, GPS does not guarantee that all eligible shares will be loaned.
Voting rights belong to the person who borrowed the shares.
During the period of securities lending, you will relinquish your voting proxy rights over the shares.
Selling the stock, or borrowing against it, or withdrawing cash from the margin account will terminate the borrowing and lending transaction.
If you sell the fully paid shares that you have already lent, or borrow the shares, or withdraw cash from your margin account (resulting in the securities becoming margin securities and no longer fully paid or over-margined security), the borrowing will be terminated and you will no longer receive interest on the loan.