This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Duration: 5:11

Instructor:

Contributor: Interactive Brokers

Level: Advanced

Did you know that IB clients may earn additional income on their fully-paid shares by lending those shares to IB for on-lending to short sellers that are willing to pay to borrow them? Join us as we explore IB’s Stock Yield Enhancement Program.

Read More

Study Notes:

IB clients may earn additional income on their fully-paid shares by lending those shares to IB for onlending to short sellers that are willing to pay to borrow them.

Eligible account holders may enroll in the Stock Yield Enhancement Program (or SYEP for short) through
Account Management. If you have a margin account with IB LLC, IB Hong Kong or IB Canada you may
enroll for SYEP. If your cash account has equity in excess of $50,000 at IB LLC or IB Hong Kong, you may
also enroll.

Upon enrollment, IB fully automates the program on its clients’ behalf. IB determines the quantity of
securities in a client’s account which may be eligible for lending taking into account the securities’
borrow demand in the marketplace. When a broker finances a client’s stock purchases through margin
lending, regulation allows the broker to loan or pledge as collateral that client’s securities in an amount
of up to 140% of the cash debit balance. Therefore, IB will on-lend excess margin securities on your
behalf.

IB posts cash collateral for shares borrowed from the account, collects interest from stock borrowers
and disburses interest payments to client accounts participating in the Stock Yield Enhancement
Program. In return for managing the SYEP program, IB splits the interest payments with clients receiving
50% of the interest collected from a short seller while the stock is loaned out.

Eligible securities include exchange-listed US common stocks, ETFs, preferred stocks and corporate
bonds. However, municipal bonds and non-US securities are not eligible.

The interest on cash collateral which a client receives in exchange for shares lent depends upon market
rates determined in the over-the-counter securities lending market. Rates are specific to the individual
security, supply and demand and general market conditions. Interest income will most likely change
from day-to-day.

Although the interest calculation uses the industry standard 360 days to determine interest, interest
does accrue every day the loan is outstanding including weekend and holidays.

Enrolling in the program does not mean that IB will automatically loan out all of your shares. Some
reasons your shares may not be lent out are:

(1) The security may not generate interest income in the securities lending market, meaning borrowers
are unwilling to pay for borrowing the security
(2) There may be little or no demand for shares of the particular security

IB prorates clients’ shares lent in the event that aggregate supply is greater than demand to borrow. For
example, if the aggregate supply of SYEP shares at IB is 100,000 but market demand to borrow is 50,000,
IB will lend each SYEP participant’s shares in proportion to aggregate demand. In this example, each
SYEP participant would have half of their eligible shares lent.

IB does not limit securities lending to its own clients, it may lend to any counterparty. The SYEP
participant’s counterparty is Interactive Brokers. Because IB manages the program, it also has the
discretion to determine which, if any, securities it may choose to lend.

Bear in mind that as a stock lender, the client is still exposed to unrealized gains or losses on shares. But
it also means that a client could write calls against a stock even while it is out on loan through the Stock
Yield Enhancement Program. And if the call is assigned and stock delivered, IB manages the process and
will terminate the loan on T+1 of the action which closed or decreased the position.

Keep in mind that you may sell your loaned shares at any time without informing IB (except as you
normally would, i.e., entering a sell order in TWS) or calling the trading desk.

There are several events that may cause termination of a stock loan.

A word about dividends – Lenders are entitled to receive dividends and distributions on loaned
securities, but will receive payments in lieu or PIL. Depending upon the holding period of the loaned
shares, the receipt of PIL may have an adverse tax impact for certain US taxpayers. That’s because of
taxation of ordinary income rather than on the reduced rate associated with qualified dividends.
However, IB will attempt to mitigate payment of PILs by recalling loaned shares prior to dividend record
date, but cannot guarantee that the lender will avoid receipt of PIL.

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Supporting documentation for any claims and statistical information will be provided upon request.

Any stock, options or futures symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: SYEP eligibility

Not all clients are eligible to participate in the Stock Yield Enhancement Program. Currently, clients of IB India, IB Australia and IB Japan are NOT eligible. Clients of IB LLC, IB Canada, IB Hong Kong and IB UK are eligible, as are Japanese and Indian clients who trade with IB LLC.

trading top