Stock Lending with Stake
An opportunity to earn interest on your U.S. stocks.
Stock Lending is Stake’s take on securities lending, a common practice where brokers lend out stocks to financial institutions, in return for a fee.
Securities lending has historically allowed high net worth or institutional investors, like fund managers, to earn a bit extra on their portfolios for stocks they already hold. With Stock Lending, Stake makes this possible and shares this extra income with you.
Below you’ll find more details about our Stock Lending program, including the key risks and protections, so you can understand if it's right for you.
How does Stock Lending work?
If you participate in Stock Lending, your U.S. stocks are available to be lent.
Stake matches your stocks with financial institutions who want to borrow them.
In return, borrowers pay interest. We use this to cover costs, and share a payment with you.
What can I expect if my stock is lent out?
For example, say you hold $1,000 of XYZ Industries shares and are part of the Stock Lending program. There's high demand to borrow this stock, so Stake’s broker is able to lend out all $1,000 of your XYZ Industries shares to ABC Institutional Investor for a year. When the loan begins, ABC Institutional Investor puts aside $1,020 of cash collateral in a separate bank account, for your protection.
ABC Institutional Investor pays interest for the $1,000 of XYZ Industries shares they borrow. After covering the broker fees, Stake receives 10% annualised interest of $100. Most of this is used to cover the costs for Stake to run the Stock Lending program, and you keep the remaining $20 (annualised). Our share of the interest allows us to offer this opportunity to you, and provides us with some additional revenue which helps us continue to provide you with low cost and seamless access to the markets. Those low costs, combined with extra interest from Stock Lending, give Stake customers the opportunity to grow their portfolios a bit more each month.
Why lend my stocks?
Extra monthly income
If a stock you hold is lent out, you’ll receive a Stock Lending Payment in your Wall St account. This is your share of the interest, after we cover the costs of setting up and running the Stock Lending program, plus a small margin to allow us to make Stock Lending available. The interest varies based on the duration of the loan, market conditions, borrower demand, interest rates, the amount of securities borrowed and other factors.
We do the legwork
Stake and our U.S. broker DriveWealth do all the work to match your stocks with financial institutions who want to borrow them. This gives you access to the lending market typically reserved for institutional investors. We only work with established borrowers, who are experienced in Stock Lending.
Keep trading as usual
You can buy and sell your holdings at any time as normal, even if the stock is on loan. Selling a stock on loan will simply end the loan. To keep things simple, DriveWealth also ends loans whenever there’s an upcoming corporate action or distribution, so you’ll still receive any dividends and be able to vote as normal.
When your stocks are lent, you transfer legal and beneficial ownership of the stocks to the borrower for the duration of the loan – but you retain economic ownership and can recall your stocks at any time. Each loan is backed by the borrower with cash collateral, which you’re entitled to in the event the borrower can’t return your stocks. The cash is solely to secure the loan and is not re-invested. It is held in a separate account at BMO Harris Bank and managed by an independent collateral administrator. The amount of collateral is adjusted daily, so it remains at least 102% of the market value of the lent stocks.
What are the risks?
Borrower default and repurchase risk for stocks on loan
There is a risk that the borrower of your stocks is unable to return the stocks it has borrowed. Any lent stocks are backed by at least 102% cash collateral, adjusted every day. However, if the market value of the lent stocks increases by more than 2% during the same day the borrower defaults, the collateral may be insufficient to fully cover the market value of the unreturned stocks, resulting in a shortfall. The borrower has a contractual obligation to reimburse you if this shortfall occurs, so any potential losses in this scenario are covered. We'll step in and liaise with the borrower directly on your behalf if this happens.
Stocks on loan are protected by collateral instead of SIPC
Your U.S. brokerage account at Stake is insured for up to US$500,000 in total equity value if the broker DriveWealth becomes insolvent. When your U.S. stocks are borrowed, they move out of this brokerage account, so those stocks aren’t insured that way during the loan. Instead, the cash collateral is your source of protection. If you’re part of our Stock Lending program but your stocks are not out on loan, the stocks in your account remain insured for up to US$500,000 total equity value as usual.
Price of stocks on loan will still fluctuate
While your stocks are on loan, you still have full economic ownership of them. You have a contractual right to their return, and to sell them at any time (which will end the loan). This means that you are still exposed to market fluctuations and the value of your stocks may go up or down whilst they are on loan.
We’ve made it simple for you to switch off Stock Lending at any time if you don’t think it’s right for you. When you’re in the Wall St section of the Stake app or web platform, go to Settings > Trade settings > Stock Lending settings.
As with all financial products, stock lending carries risk. Before making any investment decision, please ensure you understand the risks involved, consider if it’s right for you and seek appropriate advice from a licensed financial adviser. You should read our Stock Lending Explained page, Disclaimers, Financial Services Guide, Terms and Conditions, as well as DriveWealth’s Risk Disclosures and the Master Securities Lending Agreement.