Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

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Cpadave
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Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by Cpadave »

Not sure if it is new, just got an email from them.

Fully Paid Securities Lending Program | TD Ameritrade

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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general discussion). I also clarified the thread title.
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by fabdog »

Using the search box you can find a number of threads discussing fully paid securities lending

Here's an example

viewtopic.php?t=339097

As with most things there are pros and cons

Mike
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by nisiprius »

I'm a simple-minded guy. My whole concept of brokerages is that I own the stuff, it's mine, it's there, and they just hold it for me. I am the "beneficial owner." And every share shown on my statement really exists and is being held in a custodial bank.

With securities lending, it is more like the situation at a bank. Not all of my securities are really there any more, they are just confident they can find some for me whenever I actually want them back. It's one of those things that is probably just fine--but there are all kinds of theoretical complications, "black swan" possibilities.

And no chance at all that I can personally make a good judgement of what the risk involved really is.
Last edited by nisiprius on Thu May 26, 2022 12:44 pm, edited 3 times in total.
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Cpadave
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by Cpadave »

fabdog wrote: Thu May 26, 2022 11:41 am Using the search box you can find a number of threads discussing fully paid securities lending

Here's an example

viewtopic.php?t=339097

As with most things there are pros and cons

Mike
Thanks Mike. I somehow missed it.
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Cpadave
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by Cpadave »

nisiprius wrote: Thu May 26, 2022 12:13 pm I'm a simple-minded guy. My whole concept of brokerages is that I own the stuff, it's mine, it's there, and they just hold it for me. I am the "beneficial owner." And every share shown on my statement really exists and is being held in a custodial bank.

With securities lending, it is more like the situation at a bank. Not all of my securities are really there any more, they are just confident they can find some for me if I actually want them back. It's one of those things that is probably just fine--but there are all kinds of theoretical complications, "black swan" possibilities. And no chance at all that I can personally make a good judgement of what the risk involved really is.
Thanks
I agree. I will pass.
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by nisiprius »

Just to continue... I see that the web page you linked says:
The SIPC doesn’t cover shares on loans, which are secured by 102% collateral provided by TD Ameritrade and held at a third party bank. You can withdraw on this collateral in the unlikely event of a default in which TD Ameritrade does not return borrowed securities.
If all goes reasonably well then none of this comes into play. I am not saying anything there raises any red flag... but I wonder just how that works. For example, what happens if the security loaned out goes up more than 2% in value? Do they need to put up more collateral?
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by indexfundfan »

I believe the collateral is updated to 102% every day on market close.
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by grok87 »

From the link
“” wrote: However, TD Ameritrade will maintain cash as collateral, which will amount to at least 100% of the loan. In the unlikely event of TD Ameritrade filing for bankruptcy, you can draw on this collateral, which may be the only source of resolution. Each security will have its own lending rate based on demand. The annualized lending interest rate is a portion of the total interest earned on the loaned shares. TD Ameritrade splits income 50/50.
So you get 50% of the income but all of the risk
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by student »

Way too complicated for me. Pass.
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by JoMoney »

grok87 wrote: Thu May 26, 2022 5:23 pm From the link
“” wrote: However, TD Ameritrade will maintain cash as collateral, which will amount to at least 100% of the loan. In the unlikely event of TD Ameritrade filing for bankruptcy, you can draw on this collateral, which may be the only source of resolution. Each security will have its own lending rate based on demand. The annualized lending interest rate is a portion of the total interest earned on the loaned shares. TD Ameritrade splits income 50/50.
So you get 50% of the income but all of the risk
Yup, and while your "risk" is pretty low since the security being lent was/is fully collateralized, it's often the case the collateral is then put into some short-term interest bearing account to juice the returns. I was in a fund (not TD) doing this during the financial crisis and they had been reaching for yield and essentially lost some of the collateral :annoyed It was a very small amount, so not a big impact, and the fund holders (in a workplace 401k plan) wound up getting some trivial amount back in a lawsuit settlement.. but it is a risk.
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by F.D.C. Willard »

grok87 wrote: Thu May 26, 2022 5:23 pm From the link
“” wrote: However, TD Ameritrade will maintain cash as collateral, which will amount to at least 100% of the loan. In the unlikely event of TD Ameritrade filing for bankruptcy, you can draw on this collateral, which may be the only source of resolution. Each security will have its own lending rate based on demand. The annualized lending interest rate is a portion of the total interest earned on the loaned shares. TD Ameritrade splits income 50/50.
So you get 50% of the income but all of the risk
I believe the opposite is closer to the truth regarding the risk. If TDA lends your securities to a short seller who fails to return them, then TDA eats the loss. That's what the collateral is for. You would suffer the loss only if TDA went bankrupt and the collateral somehow weren't enough to cover the value of the borrowed securities that weren't returned.
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by richard.h.gao »

grok87 wrote: Thu May 26, 2022 5:23 pm From the link
“” wrote: However, TD Ameritrade will maintain cash as collateral, which will amount to at least 100% of the loan. In the unlikely event of TD Ameritrade filing for bankruptcy, you can draw on this collateral, which may be the only source of resolution. Each security will have its own lending rate based on demand. The annualized lending interest rate is a portion of the total interest earned on the loaned shares. TD Ameritrade splits income 50/50.
So you get 50% of the income but all of the risk
Sounds like TD is taking all the risk, they are putting up 100% collateral.
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by privateer79 »

richard.h.gao wrote: Thu May 26, 2022 10:51 pm
grok87 wrote: Thu May 26, 2022 5:23 pm From the link
“” wrote: However, TD Ameritrade will maintain cash as collateral, which will amount to at least 100% of the loan. In the unlikely event of TD Ameritrade filing for bankruptcy, you can draw on this collateral, which may be the only source of resolution. Each security will have its own lending rate based on demand. The annualized lending interest rate is a portion of the total interest earned on the loaned shares. TD Ameritrade splits income 50/50.
So you get 50% of the income but all of the risk
Sounds like TD is taking all the risk, they are putting up 100% collateral.
I think the key point is they're putting up 102% of yesterday's value as collateral... if the stock doubles tomorrow, washing out the short seller you get the cash value today.... but not the gain that washed out the shortseller tomorrow... (when I read previous securities lending agreements thats how it worked... maybe its better with TD...)

the other concern... I've received "payment in lieu of dividend" where you get a 1099-Misc or 1099-int instead of a 1099-div... which can have a significant impact if you're in a high tax bracket that swamps your daily lending interest... (I think there's a class action of prior scottrade customers on this issue)
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Re: Any thoughts on this from TD Ameritrade [Fully Paid Securities Lending Program]

Post by bberris »

You receive cash-in-lieu of dividends, which are taxed as ordinary income. If you decline to lend your shares, most dividends would be qualified for favorable tax treatment. If you have a margin loan, your shares can be lent out whether you participate or not, and you don't receive any lending fee payment.
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