Lending shares for shorting, out of Market Action

[Dan Detweiler]

I am completely new to this stock market stuff so I am completely ignorant regarding sell limits, puts, calls, etc. I bought my shares through Robinhood and have done nothing but sit on them. Hearing you guys talking about your shares being available to short has me concerned. I have no desire to see my shares shorted. Can Robinhood do that? If so, how do I stop it? Educate me please.

Dan

 

[Tslynk67]

I am completely new to this stock market stuff so I am completely ignorant regarding sell limits, puts, calls, etc. I bought my shares through Robinhood and have done nothing but sit on them. Hearing you guys talking about your shares being available to short has me concerned. I have no desire to see my shares shorted. Can Robinhood do that? If so, how do I stop it? Educate me please.

Dan

I'm a noob too when compared with the guys on this board. A sell-limit order is basically an instruction to your broker to sell X shares for X price, if that price get hit. These can be set as GTC - "Good 'Till Cancelled", so they'll just sit there until the conditions are met and they sell, or you cancel the order.

Stop-loss orders work the same way, but with a price limit lower then the current SP.

Sign-up to Investopedia, lots of info there...

 

[Dan Detweiler]

I'm a noob too when compared with the guys on this board. A sell-limit order is basically an instruction to your broker to sell X shares for X price, if that price get hit. These can be set as GTC - "Good 'Till Cancelled", so they'll just sit there until the conditions are met and they sell, or you cancel the order.

Stop-loss orders work the same way, but with a price limit lower then the current SP.

Sign-up to Investopedia, lots of info there...

OK, all good to know, thanks. But, can Robinhood use my shares for shorting purposes? I thought those were mine once purchased until I decide to sell.

Dan

 

[hoang51]

OK, all good to know, thanks. But, can Robinhood use my shares for shorting purposes? I thought those were mine once purchased until I decide to sell.

Dan

You'll need to research that answer by contacting Robinhood. Each broker have different rules and features that may or may not allow borrowing of shares.

 

[Tslynk67]

OK, all good to know, thanks. But, can Robinhood use my shares for shorting purposes? I thought those were mine once purchased until I decide to sell.

Dan

If they are lending them then you should be getting paid interest on the loan. If I could mend my shares out and get paid then I would, then I'd have the power to recall them too, which would be tremendously satisfying.

 

[Dan Detweiler]

If they are lending them then you should be getting paid interest on the loan. If I could mend my shares out and get paid then I would, then I'd have the power to recall them too, which would be tremendously satisfying.

Would I know if they were lending them? Do they have to notify me?

Dan

 

[Tslynk67]

Would I know if they were lending them? Do they have to notify me?

Dan

NFI

 

[mongo]

NFI

No Falcon Idea?

 

[jeewee3000]

If they are lending them then you should be getting paid interest on the loan. If I could mend my shares out and get paid then I would, then I'd have the power to recall them too, which would be tremendously satisfying.

I believe you can as a KeyTrade customer. I use Binck right now and can turn permission to lend out my shares on and off at will. However, you cannot recall at will, the Broker will just (if you recall to sell) provide you with some shares they own or buy themselves.

I started lending them out but the interest rates are way to low for it to be worth the risk. (=if your broker goes bankrupt, you can lose your portfolio. I just don't want to risk it.)

Back on topic: rise in premarket is very low volume. This can drop to $350 in seconds, so be ready at the open hoang51.

 

[adiggs]

I am completely new to this stock market stuff so I am completely ignorant regarding sell limits, puts, calls, etc. I bought my shares through Robinhood and have done nothing but sit on them. Hearing you guys talking about your shares being available to short has me concerned. I have no desire to see my shares shorted. Can Robinhood do that? If so, how do I stop it? Educate me please.

Dan

Details will be part of your account agreement, but broadly speaking, the general idea is that if you're buying your shares on margin / in a margin account, then you really co-own the shares with the broker. And part of your margin account agreement will be a clause that they can lend out "your" shares and keep the interest, without asking you.

If you're in a fully paid account, then they are your shares, and they can't be lent out (they aren't the brokerages to lend - they're yours). I don't have specific information about Robinhood - you will need to read your account agreement and/or talk to somebody there.

If you aren't using margin, then I wouldn't worry about it - if somehow your account agreement does allow for the shares to be lent out, that would be very different from industry practice and standards. If you are still worried about it, then the only source of information you should trust to be adequately complete is Robinhood - call them.

 

[mershaw2001]

I am a customer of one of the larger brokerages and called them up and was provided with this information several years ago by a representative:

If the customer has a cash account, the shares are not lent out.
If the customer has a margin account with no margin debit (no borrowed money) the shares are not lent out unless you are a willing participant in the fully paid lending program.
If the customer has a margin account with margin debit, the shares are lent out by the brokerage with the customer getting none of the money.
If the customer has a margin account and is part of the Fully paid lending program, some portion (calculated by what percentage of the amount you own of the margin debit and your share position) is paid back to you.

Selling calls on the position in a fully paid lending program prevents the shares from being lent out.
Placing a "good till canceled" order DOES NOT prevent the shares from being lent out in a normal margin account w/margin debit at this brokerage.

 

[ggr]

I am a customer of one of the larger brokerages and called them up and was provided with this information several years ago by a representative:

If the customer has a cash account, the shares are not lent out.
If the customer has a margin account with no margin debit (no borrowed money) the shares are not lent out unless you are a willing participant in the fully paid lending program.
If the customer has a margin account with margin debit, the shares are lent out by the brokerage with the customer getting none of the money.
If the customer has a margin account and is part of the Fully paid lending program, some portion (calculated by what percentage of the amount you own of the margin debit and your share position) is paid back to you.

Selling calls on the position in a fully paid lending program prevents the shares from being lent out.
Placing a "good till canceled" order DOES NOT prevent the shares from being lent out in a normal margin account w/margin debit at this brokerage.

Without disputing anything you said, I think this might be specific to your brokerage. Do you mind saying which one? I'm with ETrade, and have been told that placing a limit order does pull any loaned shares from my margin account back. (But, honestly, with ETrade I don't believe anything I've been told until I find it in writing.)

 

[neroden]

I can confirm that everything Mershaw says is correct. This is *standard*. Some brokerages may have other agreements, but this is normal.

I am a customer of one of the larger brokerages and called them up and was provided with this information several years ago by a representative:

If the customer has a cash account, the shares are not lent out.
If the customer has a margin account with no margin debit (no borrowed money) the shares are not lent out unless you are a willing participant in the fully paid lending program.
If the customer has a margin account with margin debit, the shares are lent out by the brokerage with the customer getting none of the money.
If the customer has a margin account and is part of the Fully paid lending program, some portion (calculated by what percentage of the amount you own of the margin debit and your share position) is paid back to you.

Selling calls on the position in a fully paid lending program prevents the shares from being lent out.
Placing a "good till canceled" order DOES NOT prevent the shares from being lent out in a normal margin account w/margin debit at this brokerage.

There is some subtlety if you have a very small margin loan; they can only lend out shares equal in value to 140% of the size of your margin loan (unless you're in the fully paid lending program). They will do so.

The rules about when brokers can lend shares out without asking you or paying you are SEC regulations, so apply to all US brokerages; rules may be different in foreign countries.

You may be able to lend out fully paid shares while selling calls if you are authorized for *uncovered* calls, but they'll be treated as uncovered.

 

[madodel]

Would it help, IF all longs here check that their shares couldn’t be lent, or if they were, is it even possible to recall?

I haven't asked lately but my Fidelity broker once told me that since my brokerage account is not set up for margin they won't loan it out. Anyone with Fidelity know if that is true?

 

[mershaw2001]

Without disputing anything you said, I think this might be specific to your brokerage. Do you mind saying which one? I'm with ETrade, and have been told that placing a limit order does pull any loaned shares from my margin account back. (But, honestly, with ETrade I don't believe anything I've been told until I find it in writing.)

I was trying to be as specific about my experience as possible- I agree that it may vary by brokerage. I am with Fidelity.

As far as entering the Fully Paid Lending program-I first tried to enter several years ago, they told me originally that you had to have 250,000 dollars in an account, and at least a certain size position in a desirable stock like tesla of at least 50,000 dollars or if the stock price was smaller something like 10,000 shares to be invited. It's been a while since I asked so I may not be correct on the specifics. Several years later I applied again (this was after the huge bump in tesla share price we've had in the past 5 years) and they sent me all the paperwork. I just haven't filled it out because I'm using so much margin I assume they won't pay me anyway.

 

[mershaw2001]

You may be able to lend out fully paid shares while selling calls if you are authorized for *uncovered* calls, but they'll be treated as uncovered.

Thanks neroden, this is a good idea and a clever work-around. I am maxed on margin at most times so having "naked calls" would probably require too much margin to maintain, but still might be something I could use in the future if the opportunity presents itself.

 

[ruralectric]

I haven't asked lately but my Fidelity broker once told me that since my brokerage account is not set up for margin they won't loan it out. Anyone with Fidelity know if that is true?

My situation as well. Fidelity basic brokerage account, no margin. My shares are loaned out but with my permission. Requires a form or two to set up to opt in. Sometimes my shares are lent out, sometimes not, and the share lending rate paid to me depends on the demand. All my shares in IRA and ROTH IRA accounts are currently lent out at 1.375%. I've never tried to sell while my shares were on loan, but pretty sure it's just a matter of a phone call.

Fully Paid Lending

 

[neroden]

Fidelity requires two days' notice for recalls (i.e. you recall the shares, you get them back 2 days later), in line with the settlement period for stock trading. Schwab recalls overnight. I don't know about IB.

One thing I've never been able to figure out is whether my sales of naked puts (or calls) count as a "margin loan" for the purpose of the 140% rule. I don't have a balance subject to interest (so no margin loan), but I am using my margin capacity to secure options positions (reducing my margin capacity and potentially causing margin calls), so I'm not sure which number is used for the 140% calculation.

 

[MikeC]

Fidelity requires two days' notice for recalls (i.e. you recall the shares, you get them back 2 days later), in line with the settlement period for stock trading. Schwab recalls overnight. I don't know about IB.

One thing I've never been able to figure out is whether my sales of naked puts (or calls) count as a "margin loan" for the purpose of the 140% rule. I don't have a balance subject to interest (so no margin loan), but I am using my margin capacity to secure options positions (reducing my margin capacity and potentially causing margin calls), so I'm not sure which number is used for the 140% calculation.

I haven't actually done this but at Fidelity, I think you can just sell the shares like normal and they will automatically be returned without having to do anything or wait. I just tried to place a sell order in my account and got this picture, which seems to support this:

 

[neroden]

I haven't actually done this but at Fidelity, I think you can just sell the shares like normal and they will automatically be returned without having to do anything or wait. I just tried to place a sell order in my account and got this picture, which seems to support this:

View attachment 311299

Yes, if you're *selling* them -- two day settlement delay on sales, two day settlement delay on recalls, they match up.

But if you want to, for example, transfer the shares to another brokerage company or give them as a gift, *or vote them*, I believe they have to be settled shares first.

I know they have to be settled before the record date for voting purposes -- so you have to recall them two days *before* the record date. (I'd recall a few days before that in case anything goes wrong.)