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Interactive Brokers Stock Yield Enhancement Program
Interactive Brokers (read our full review) has launched a program which allows shareholders to lend their shares to Interactive Brokers (IB) in exchange for cash collateral. IB then lends the shares out to traders who are shorting them and thus paying a fee to burrow them. For managing this transaction IB takes a 50% cut. In order to participate you must be an IB client with an approved margin account or have a cash account value of $50,000+.
The plan allows the trader to still retain ownership of the stock and they can sell it at anytime. Obviously markets are risky and this program has no guarantees from the SIPC for loaned out shares. Loan rates vary widely and fluctuate often too. There are also tax issues with dividend payouts and voting rights are forfeited.
Still, for the long term investor or a trader with a significant position, this can be a lucrative opportunity. If you own 10,000 shares of a stock trading at $100 with a going loan rate of 2% your cut would be $10,000 annually all else remaining equal. (10,000 shares x $100 share value x 2% loan rate x 50% shareholder cut)
Read more about the IB Stock Yield Enhancement Program.
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