Q: RE: TD Direct Investing - Stock Lending Program
This idea is new to me, and I’m interested in better understanding the concept.
According to the website, the benefit of participating is the interest the person lending their stock receives, which is split 50/50 with TD. There is no indication of what percentage interest you’ll receive. While I understand interest would fluctuate, without a range, it’s hard to determine the actual benefit or whether participation is worthwhile.
For an individual investor.
1) What are the major pros and cons of participating in a program like this?
2) Are there big differences if using a tax-deferred account vs a taxable account?
This idea is new to me, and I’m interested in better understanding the concept.
According to the website, the benefit of participating is the interest the person lending their stock receives, which is split 50/50 with TD. There is no indication of what percentage interest you’ll receive. While I understand interest would fluctuate, without a range, it’s hard to determine the actual benefit or whether participation is worthwhile.
For an individual investor.
1) What are the major pros and cons of participating in a program like this?
2) Are there big differences if using a tax-deferred account vs a taxable account?
5i Research Answer:
Most brokers only allow cash account like TD but some brokers have expanded to other accounts. But the mechanics are the same. Short sellers pay a fee to borrow stock, and the broker shares that fee with client. The fee varies by the company and its float and its volatility. A large ETF might generate less than 1% annually. A heavily shorted volatile small cap could be 10% plus. Lenders lose Voting Rights and CIPF protection on stocks lent out.