As you probably know, if and when your securities are lent out is unpredictable and random. Rest assured, I thought the same as Fxmove88 until I discovered that I got payments in lieu although for extended periods i.e. covering the ex-dates, I had positive cash balances in all currencies. Several customer service chats later, and reading the help pages on IB, revealed the unfortunate truth. The broker industry made sure they get their cut. I think these rules are specific to the U.S. and seem arbitrary not to say nonsensical, but then again maybe we should be happy because I think in most other places in the world there is no retail access to futures and options anywhere near as convenient as here in the U.S. in the first place.gougou wrote: ↑Sun Dec 19, 2021 5:10 pmI have some Box Spread leverage on my MLP portfolio and IB hasn’t been lending out my units. It looks like I should pay more attention to my account statements especially around the ex-dividend dates. Do you know what leverage is considered “high enough leverage”? I borrow at most 20% of my NAV to buy the dips and I pay them off overtime and I haven’t seen any security lending activity or “cash in lieu”. If my MLP distributions become cash in lieu I’ll be royally pissed.comeinvest wrote: ↑Sun Dec 19, 2021 3:29 pmYou will be disappointed. I thought the same as you, until I discovered that box spreads allow the broker to lend your shares. The math and terminology are complex, and I forgot the details, but the end result is that if you have high enough leverage through box spreads, IB will lend all your shares just like they do if you use margin. Only futures don't result in lending shares. Unlike most other major brokers, IB does not get your shares back on the ex-dates, and does not reimburse you for the tax disadvantage if they lend your shares through the ex-date, like most other major brokers do. I personally like the IB platform a lot, but this is the major issue that makes me think about moving part of my portfolio to Schwab. Schwab broker margin rates would be prohibitive, but box spreads eliminate the need for broker margin. Box spreads are the greatest invention since sliced bread.Fxmove88 wrote: ↑Fri Dec 17, 2021 10:19 pm One of the forgotten facts of the use of Boxes is to prevent your brokers from rehypothecating your shares when you borrow money with margin. Fund managers dislike their shareholding being rehypothecated and that's why they borrow money through box spread.
Rehypothecated shares that pay dividend will generate Payment in Lieu of Dividends which resulted the dividend is treated like a regular income for tax purposes.
I just discover to my dismay that I borrow a small amount of GBP87 through margin, but this has resulted IBKR lending about GBP4,600. of my shares and certainly not share any fees from it, creating a tax liability from its Payment in Lieu of Dividends. IBKR is at free will to choose whichever shares they can lend out and make profit out of it. The more variety of shares you have the more likelihood your shares are being rehypothecated.
In general I am warry of shares rehypothecation and would prefer borrowing using box. Rehypothecated shares may run a risk of not being unaccounted especially during the time when the broker/counterparty is going through bankruptcy situation.
Schwab doesn’t have Portfolio Margin so it’s risky to even borrow a small amount with them. I heard TDAmeritrade has Portfolio Margin but I’ve never used them.
If Schwab doesn't offer Portfolio Margin, then I think Schwab is not an option. I think skierincolorado (participant in this thread) successfully uses boxes in non-portfolio margin accounts, but I think it's a major hassle with SMA (?) and much less leverage i.e. you have to de-leverage much earlier. I think for those who otherwise like IB, TradeStation might be the next best option, but I don't know if they have portfolio margin, or how they handle securities lending and payments-in-lieu.
I personally generally dislike Schwab and TD Ameritrade and much prefer IB as they give much more control over trading and offer a much larger range of products including international, but maybe a TD Ameritrade account is in order so to avoid payments in lieu. I have already Schwab for my cash and checking needs, so I would hate to have an account with yet another brokerage. Also, I hear that Schwab and TD Ameritrade (already merged) will merge their products eventually, so I guess there is a risk that they discontinue portfolio margin.