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About 6 years ago Schwab sent me a letter proposing a deal where they would pay me monthly interest in return for allowing them to borrow shares I owned in an obscure Chinese home furnishing company to use as collateral in short sales. This was as part of what they call the Schwab Securities Lending Fully Paid (SLFP) program. The interest rate was good and I had no intention of selling the shares so I said OK.
They set me up a new account called my supplemental lending account and transferred the shares to that account and sent me a letter of credit in the mail which I could use as restitution if the firm borrowing my shares never returned them. I then received monthly interest payments for maybe six months and then one day they said they were cancelling the arrangement, no reason given, and returned the shares to my regular account.
All of this mystified me, in part because I thought when one opened an account one of the things one agrees to is to let them lend your shares for shorting purposes. Well, just now I received another request from Schwab asking about shares I have in SB and offering me 10% interest, an big rate in today's environment. Plus I still get any dividends paid. So I did it. Realizing of course that the shares could fall in value more than the 10% per annum and I can lose money. But less than I would without the interest payments.
Is anyone familiar with such an arrangement? And who is paying the interest? The only thing that makes sense to me is that the shorter cannot obtain shares from their own broker but is so sure they can make money on the short that they are willing to pony up 10% a year plus any dividends to borrow the shares elsewhere. I mean there is no apparent reason a brokerage would pay money to me to allow someone to short something.
Any thoughts?
They set me up a new account called my supplemental lending account and transferred the shares to that account and sent me a letter of credit in the mail which I could use as restitution if the firm borrowing my shares never returned them. I then received monthly interest payments for maybe six months and then one day they said they were cancelling the arrangement, no reason given, and returned the shares to my regular account.
All of this mystified me, in part because I thought when one opened an account one of the things one agrees to is to let them lend your shares for shorting purposes. Well, just now I received another request from Schwab asking about shares I have in SB and offering me 10% interest, an big rate in today's environment. Plus I still get any dividends paid. So I did it. Realizing of course that the shares could fall in value more than the 10% per annum and I can lose money. But less than I would without the interest payments.
Is anyone familiar with such an arrangement? And who is paying the interest? The only thing that makes sense to me is that the shorter cannot obtain shares from their own broker but is so sure they can make money on the short that they are willing to pony up 10% a year plus any dividends to borrow the shares elsewhere. I mean there is no apparent reason a brokerage would pay money to me to allow someone to short something.
Any thoughts?
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