Hi,

I recently got an email from my brokerage house here in Canada (Questrade). It was a quick email with a pdf that I have attached a link to that quickly outlines something they want to implement. Essentially they want to have access to shares that I own so they can lend those shares to other financial institutions and they would pay me 50% of the fees they receive for doing this.

Link.

You guys are a lot more knowledgeable about this stuff than I am, but I want to learn, so I'm asking you a few things. What exactly is happening here? Why is one financial institution borrowing shares from another institution? Who benefits and how? What downside, if any, do I have if I agree to let them do this? I don't really see any negative side effect to this if I am reading the document correctly. Sure, I lose my voting rights, if my shares are lent out, but I've never voted and can't imagine I will anyways. I'm fractions of fractions of percentage ownership of the companies I own.

Thanks!

That's interesting. Mine does it by default and is sort of sneaky about it. I don't get any money either.

What I don't understand is they say they deposit money equals to the market value of your share in an account in case the borrower defaults.

Why would they do that? I assume it must be some kind of regulation. Can't they just margin call him?

In any case, don't expect to make a lot of money. They probably charge the LIBOR/overnight rate/whatever interest rate goes where you are and then some on the loan and as you know, central banks have been dovish lately. Expect maybe 0.6%.

Yeah pretty much all brokerages do this, but few will pass the interest they collect back to you. I think 50% is pretty standard.

Basically, these shares are being borrowed for short selling. If I want to short a stock and hold it for more than 2 days, those shares have to be delivered to the buyer. Since I don't own the shares because I'm short selling, those shares are borrowed from someone who owns them. Frequently a daytrading/prop trading firm will go to big retail brokerages like Etrade, Fidelity etc, where they have customers that own and hold lots of stock, and pay them to borrow shares.

So if I hold a stock short, I pay short interest to who ever I'm borrowing the shares from. On a large cap stock like AAPL the interest is probably around 0.5%, while on a stock that people really want to short, like TSLA, it could be 10-50%. Some micro caps that are going crazy can get in the 100s%

AAPL, along with many large caps actually have positive carry if you want to short. At least with IB, the fee to short is 0.25%, so the owner is getting less than this, and shorter gets the difference between that and that the overnight rate. And TSLA's fee is at 1.15%.

Thanks everyone. I suspected that this was related to short selling, but wasn't sure how. I also didn't know a lot of this stuff about paying interest on a short position - I assumed the interest I would pay to short was the same as I pay to borrow to go long. I stand corrected.