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Brokerage offering "Fully Paid Lending Program"

Yonki

Supporting Member
Mar 31, 2015
551
1,718
Pacific Grove, CA
I just got an email from Fidelity, where I hold a large SCTY position (I'm sure this would apply to TSLA, too), inviting me to participate in their "Fully Paid Lending Program". Apparently I loan some or all (at their discretion) of my shares to them, and I get a monthly interest payment on those shares. The email stated that the current return on SCTY is currently 13.25%. The only downside seems to be if Fidelity fails and can't pay me back (which, having just been reminded by The Big Short, I suppose could happen).

13.25% sounds like a no-brainer to me, so wondering if anyone here:
  • Has any first-hand knowledge of this strategy
  • Is aware of any downside not mentioned in the brochure (am I helping shorts?, or just giving them more rope?, or...)

I've attached the Fidelity pdf describing this program.

Cheers,
Fred
 

Attachments

  • FI Fully Paid Lending.pdf
    143.5 KB · Views: 257

jhm

Well-Known Member
May 23, 2014
9,319
30,991
Atlanta, GA
Does anyone know what rate Fidelity is charging shorts to borrow these shares. Fidelity could be making a spread of 50% or more on this.

SolarCity could be headed for a major short squeeze.
 

jhm

Well-Known Member
May 23, 2014
9,319
30,991
Atlanta, GA
According to this thread, it's as high as 90%.

Maybe I should try to negotiate my rate...

I doubt you would have much leverage in negotiation. The rebate rate changes constanly. So it would be nice to know how your rate would change as the rebate rate changes. There may be a formula or rule for this. I'd love to know how that works.
 

Yonki

Supporting Member
Mar 31, 2015
551
1,718
Pacific Grove, CA
I doubt you would have much leverage in negotiation. The rebate rate changes constanly. So it would be nice to know how your rate would change as the rebate rate changes. There may be a formula or rule for this. I'd love to know how that works.

You've touched on one of the issues with this program - you don't know what their rate is, so if your rate goes down you can only trust that they're not just lowering your rate and pocketing the extra. Apparently they do let you know how many shares have been lent out, though. But I guess anything's better than the 0% interest I get today...
 

winfield100

Supporting Member
Feb 16, 2013
2,746
9,857
vivant non-traveler
i would rather them be 'naked' shorts and not have any shares to borrow. just my take on it. i regularly ask my brokerage if any of my shares are loaned out and tell them don't <schwab>
 

Yonki

Supporting Member
Mar 31, 2015
551
1,718
Pacific Grove, CA
Fidelity has now loaned out both my TSLA shares (at 2.5% interest to me) and SCTY (at 4.0% - not quite the 13.5% they initially offered me). I imagine they are making out like bandits if the rate they are earning is in the high double digits as has been reported. Now, while I don't mind making 2.5% on several thousand shares of TSLA or 4% on a similar amount of shares of SCTY while I'm holding them long term, I am a little tired of the stock price being depressed largely because of the short selling.

So my question is: Am I in any significant way contributing to the shorting pressure by allowing my shares to be shorted, or are a few thousand shares such a drop in the bucket that I might as well just let them be loaned out and collect the interest? I suspect the latter but would appreciate feedback.

This is in my IRA so I can basically trade (or just ask for my shares back) freely without worrying about tax consequences.
 

bhzmark

Active Member
Jul 21, 2013
3,426
5,168
Drop in the bucket. Most shorted shares are borrowed from mutual funds who are in the additional business line of lending their securities.
 

Yonki

Supporting Member
Mar 31, 2015
551
1,718
Pacific Grove, CA
are there tax consequences for lending the shares out if the stocks are not in IRA accounts?
Yes, they'd report the interest on a 1099. Interestingly, if the stock pays dividends (obviously not TSLA or SCTY), apparently you will get the dividend amount you were due, but it is reported as interest or ordinary income (not a dividend).
 

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