I was pretty excited to receive the confirmation email from my brokerage, Interactive Brokers (IBKR), to inform me that my request to join the Stock Yield Enhancement Program (SYEP) has been approved because it means that I now can earn some passive income off my shares in a relatively low-risk manner.
What Is The Stock Yield Enhancement program (SYEP) About?
The Stock Yield Enhancement program provides customers with the opportunity to earn additional income on securities positions that would otherwise be segregated (i.e., fully-paid and excess margin securities) by permitting IBKR to lend out those securities to third parties. Customers who participate in the program will receive collateral (either U.S. Treasuries or cash) to secure the return of the stock loan at its termination.
In short, it means you lend your shares to your brokerage so that they can lend them to traders who need to cover their shorts and are willing to pay interest from borrowing from the brokerage. The brokerage then shares 50% of the interest earned with you.
Tesla is currently trading at USD 900/share. You own 200 shares of Tesla, with a market value of USD180,000. Tesla is in demand and commands a loan interest rate of 10%.
You sign up for IBKR’s Stock Yield Enhancement Program and IBKR loans out your 200 shares of XYZ at 10%. IBKR will pay interest on the U.S Treasury or cash collateral of USD 180,000 x 5% = USD 9,000.
You could earn USD 9,000/year on the Tesla stocks you already own.
What Are the Benefits Of SYEP?
Simple & Automatic
IBKR manages all aspects of share lending. Once you enroll, IBKR will examine your fully-paid stock portfolio automatically. If you have stocks that are attractive in the securities lending market, IBKR will borrow the stocks from you, secured by collateral (either US Treasuries or cash), and lend the shares.
When your stock is loaned out, you will see the interest rate that you are being paid on the collateral (U.S Treasury or cash) value along with the amounts earned by IBKR from lending those shares. Other brokers with similar programs generally do not disclose the market rates to you, which allows them to pay you a small piece of the pie while holding on to most of the profits.
Earn Supplemental Income
Each day that your stock is on loan, you will be paid interest on the collateral (U.S Treasury or cash) value for the loan based on market rates.
No Restrictions On Loaned Stock
You will see the loaned shares on your account statement, indicating that they are being loaned out. You are still the owner of the stock, which means you continue to have market risk and will recognize any profit (or loss) if the stock price moves. You can sell your shares at any time without restriction and can terminate your participation at any time for any reason. You are also able to do options on your shares, such as selling covered CALL on your shares.
Considerations & Risk
Voting Rights Go To The Borrower
During any period in which your securities are loaned out, you will forfeit your right to vote for those shares by proxy.
Shares Loaned Out May Not Be Protected By SIPC
The Securities Investor Protection Act of 1970 may not protect shares loaned out. This is why under SEC rules IBKR must provide you with U.S Treasury or cash collateral in the same amount as the value of your shares to protect you in the very unlikely event that the stock is not returned to you.
Interest Rates May Fluctuate
These rates and the interest you will receive may go down (or up) by 50% or more and IBKR does not guarantee that it will lend all eligible shares
Who is Eligible?
The Stock Yield Enhancement Program is available to eligible IBKR clients who have been approved for a margin account, or who have a cash account with equity greater than USD 50,000 (or equivalent).
In my stock portfolio, I own 1400 Palantir shares, 300 Nvidia shares, 200 Tesla shares, 200 Bank of America (BAC) shares, 100 Alphabet shares, 100 Apple Shares, 100 AMD shares, 100 Pinterest shares, and 100 Nio shares.
How to Sign up?
Go to Client Portal > Account Settings > Stock Yield Enhancement Program
Once you click on the Stock Yield Enhancement Program, select the checkbox on the next screen and click Continue.
You will then acknowledge with your signature/ initials to formally submit the request to be enrolled under this program.
You will wait about 24 hours to get an acknowledgment reply from IBKR.
I hope this sharing is useful to you and can help you earn some passive income for your long-term stock positions. I will be sharing the interest earned through this program in the future, for anyone who is interested to know roughly what is the return for this program.
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