Earned Income from lending securities

Hi All,
I have a Schwab account, today they contacted me with the offer below. Basically I lend them my shares so that someone can short that stock. They pay me some interest, as low as 3% but apparently can be in the low double digits…this particular offer was 7% for my UBNT shares. Anyone done this or have thoughts?

" We’re writing to offer you a unique income opportunity through Schwab’s Securities Lending Fully Paid (SLFP) program. Enroll in SLFP, and you can receive monthly income for lending securities to Schwab that are in high demand by other investors.
Benefits of the SLFP program include:

You can sell loaned securities at any time.
You can end loans at any time.
Income accrues daily and is paid monthly.
You’ll receive 100% collateral for loaned securities.
You can participate at no cost to you.
"

thanks,
Ethan

1 Like

What are the downsides? If you are afraid of shorts hurting your position, trust me they will just borrow someone else’s shares anyway. You may as well get paid for it. Now if this was a stock with 50% of the shares sold short already, you might want to rethink. (But if that were the case, they would also likely be offering you even more to loan the shares out.)

Yes the broker is probably charging the other side 10% to borrow, but they are going to take their cut. Just the nature of the beast. Take their 7%. Maybe another broker might offer more, but not worth the hassle of finding out unless you are already looking for another broker.

So again, what are the downsides? So long as you can get out anytime you want, I think that it is just extra income for you. And who knows, if things do not work our for the short, you might get some extra upside when they cover.

2 Likes

I had Schwab borrow some shares a few months ago. The only downside that I saw was that they didn’t borrow them for very long so I didn’t make very much on the transaction. My guess was that they only borrow round lots, so they borrowed some, but not all.

Hi Ethan, It seems to me to be self-defeating to lend somebody your shares so he can sell them short and drive down the price of your holding, even if you get a nominal interest rate.
Just my opinion.
Saul

1 Like

even if you get a nominal interest rate.

The interest rate can be far from nominal. And, the other person is going to short the stock one way or another whether they are your shares or not. All you are doing by not lending yours is contributing to a shortage and driving up the interest rate. Since the short is paying that interest, a higher rate may encourage them to quit the short.

Buyer and seller for every share of stock. You have no idea if the shares of TWLO you just bought were ‘real’ shares or ‘shorted’ shares from another trader anyway.