Etrade is a financial trading platform where individuals trade financial securities like stocks, mutual funds, and more. Since users can buy and sell shares on the platform, it gives rise to whether one can loan their shares too.
You can loan your shares on Etrade through their fully paid lending program. Individuals enrolling in this program can loan their shares to Etrade in exchange for potential income. Individuals are also provided with cash collateral if their securities are on loan.
This article will go over Etrade and how you can loan your shares on the platform. We will also consider a few considerations to keep in mind, like dividends and FDIC protection when loaning out shares. I will also address the concern of many. Can you sell shares after they have been loaned out?
Let’s get into it!
Eligible applicants can apply online for the fully paid lending program. Currently, individuals holding brokerage cash accounts and IRAs are eligible to apply because they have a minimum of $25,000 in their account.
After reading the disclosures and agreements, agreeing to them will give Etrade the right to borrow your securities for compensation.
Loaning shares have the same revenue implications as giving someone a loan; you will receive interest. The interest rate is annualized, and the interest accrued is deposited into your account monthly. However, there is no guarantee that any of your shares will be borrowed as it depends on the demand for security.
There is no fixed rate as the annualized interest rate fluctuates depending on certain factors like:
- Borrowing demand
- Market supply
- Short selling
- And more
The duration of the loan and the type of security borrowed also depend on the market forces of demand and supply. You do not have control over what you choose to loan out once you’re enrolled in the fully paid lending program.
Is there any collateral for securities borrowed by Etrade?
Yes, Etrade puts up cash collateral of 102% of the mark-to-market value of the securities borrowed from you. The cash collateral is deposited in your account automatically at one or more affiliated banks. Since securities prices fluctuate quite often, you will be able to view this mark-to-market in your transaction history daily.
Is there any insurance protection with the lending program?
The cash collateral deposited into an individual’s account is protected by Federal Deposit Insurance Corporation, with a coverage limit of up to $250,000. However, the securities borrowed are not protected under Securities Investor Protection Corporation.
You are entitled to receive cash payments instead of non-cash dividends paid on any shares that have been loaned. The cash payment is at least equal to the amount of non-cash dividends.
Since you fully own the shares, you can sell shares that have been loaned without any restrictions. To sell your shares that have been loaned, you don’t need to de-enroll from the program. Once you sell the shares, the loan is terminated, and you lose any right to receive interest.
You can give Etrade the right to loan your shares for interest payments. However, you also end up losing your proxy voting rights on securities loaned out. You also get cash instead of qualified dividends, which might concern some individuals.
There are certainly risks with lending shares, but in the end, it depends on your risk to return appetite. From my experience, I would try to know the product better and how it covers my financial needs before applying.
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