Securities Lending (Fully Paid Lending)
The Formal Definition
A program where a brokerage firm borrows fully paid shares from client accounts to loan them out to short sellers and hedge funds in exchange for collateral and interest.
Lending Income = (Borrowed Asset Value × Annual Borrow Rate) ÷ 360
Cole Barrett's Reality Check
The Unvarnished Bottom Line"Brokers love securities lending because it's pure profit. They take your shares, lend them to short sellers who bet against your company, collect a 10% borrow fee, and give you back a 2% cut—while your shares lose SIPC protection during the loan."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: $50,000 of hard-to-borrow growth stock on loan for 1 year (12% borrow fee)
| Execution Metric | 50/50 Revenue Share Broker (IBKR SYEP) | Opaque App (Keeps 85% of fee) |
|---|---|---|
| Fee / Rate | Transparent 50% split | 15% client split |
| Spread / Buffer | Your cut: 6.0% APY | Your cut: 1.8% APY |
| Execution / Status | Earned: +$3,000.00 | Earned: +$900.00 |
| Total Cost / Result | Max passive yield | Lost $2,100 in rightful yield |
How Brokers Weaponize This Term
Many retail broker agreements automatically opt you into securities lending by default in the terms of service without transparent borrow-rate reporting.
Broker Evaluation Matrix
Cole Approves
Interactive Brokers (Stock Yield Enhancement): Transparent 50/50 gross revenue split with cash collateral.
Read Audit →Cole Flags / Avoids
Zero-Disclosure Retail Apps: Lends shares without client revenue sharing.
View Trap Details →Frequently Asked Questions
Can I sell my shares while they are on loan?
Yes. You retain full economic ownership and can sell your shares at any time without restriction.
Are loaned shares covered by SIPC insurance?
No. Shares on loan are not covered by SIPC; however, Tier-1 brokers back the loan with 102%+ cash collateral held in custody.