Stock Yield Enhancement Program

---

MANAGE STOCK YIELD ENHANCEMENT PROGRAM PARTICIPATION

Clients who are eligible and wish to enroll or terminate their participation in the Stock Yield Enhancement Program (SYEP) can use the button above or follow the below procedure:

1. Log in to Account Management/Client Portal.
2. Click the User menu (head and shoulders icon in the top right corner) followed by Settings.
3. Under Account Settings find the Trading section.
4. Click Stock Yield Enhancement Program.
5. Sign up for the Stock Yield Enhancement Program by selecting the box, or terminate participation by removing the check from the box next to it.
6. Click CONTINUE and follow the prompts on the screen.

The Stock Yield Enhancement program provides customers with the opportunity to earn additional income on securities positions which would otherwise be segregated (i.e., fully-paid securities) by permitting PT to lend out those securities to third parties. Customers who participate in the program will receive a portion of the interest paid on the cash collateral by the borrower as loan compensation for any day the loan exists and will receive cash collateral to secure the return of the stock loan at its termination.

Please Note

PT security positions can be fully-paid and/or have excess margin.

Yes. As a participant of the Stock Yield Enhancement Program you can sell any number of shares including the entire amount if you want. There is no difference in how you trade based on whether or not the shares are lent. 

The income that a customer receives in exchange for shares lent depends on rates in the over-the-counter securities lending market. These rates can vary significantly, not only by the particular security loaned but also by the loan date. In general, PT pays interest to participants on their collateral at 50% of a market-based rate. 

There is no guarantee that all eligible shares in a given account will be loaned through the Stock Yield Enhancement Program as there may not be a market at an advantageous rate for certain securities, PT may not have access to a market with willing borrowers or PT may not want to loan your shares.

Clients carrying financing deficits are subject to having stock amounting to 140% of the deficit non-segregated, selected at the discretion of the broker, and therefore ineligible to lend as part of the SYEP.

The cash collateral underlying the security loan from the Stock Yield Enhancement Program and used for determining interest payments is calculated using standard industry convention whereby the closing price of the stock is multiplied by 102% and then rounded up to the nearest whole dollar.

For example, a loan of 100 shares of a stock which closes at $59.24 would be equal to $6,100 ($59.24 * 1.02 = $60.4248; round to $61, multiply by 100).his item.

Stocks that are eligible for the Stock Yield Enhancement Program:

US Market

• Common stocks (exchange listed, PINK and OTCBB)
• ETFs 
• Preferred Stocks 
• Corporate bonds*

EU & UK Marke

• Common Stocks (exchange listed)
• ETFs
• Preferred Stocks

HK Market

• Common Stocks (exchange listed) 
• ETFs 
• Preferred Stocks 

CAD  Market

• Common Stocks (exchange listed) 
• ETFs 
• Preferred Stocks

*Municipal bonds are not eligible.

Please Note

• In order to optimize your revenue, we focus on the stocks with a borrow offset greater than 25bps from Fed Funds, the industry interest rate benchmark. Therefore, not all stocks in your portfolio may be loaned.
• The universe of stocks that are sought after and thus have the most value from a stock loan perspective are labeled Hard-to-Borrow (HTB) and represent a subset of the total equity available for lending in the USA.
• There is a constant shifting of the most desirable stocks and there is no comprehensive way to predict which stock will become HTB, so PT has set up the Stock Yield Enhancement Program (SYEP) to include all the stocks in a customer's account. When a stock becomes HTB, the PT algorithm can search all customer portfolios in the program for the stocks that can be loaned effectively.

Loan collateral, shares outstanding, activity and income from the Stock Yield Enhancement Program is reflected in the following 6 statement sections:

1. Cash Report: This shows the starting collateral (either U.S. Treasuries or cash) balance, net change resulting from loan activity (positive if new loans initiated; negative if net returns) and ending collateral balance.
2. Net Stock Position Summary: This section displays the borrowing and lending details for each stock. Net Shares (=Shares at PT + Shares Borrowed - Shares Lent). 
3. Interest Accruals: SYEP income is included in the Interest Accrued and is treated like any other interest accrual (aggregated but only displayed as an accrual when exceeding $1 and credited to cash monthly). For year-end reporting purposes, this interest income will be reported on Form 1099 issued to U.S. taxpayers.
4. Stock Yield Enhancement Program Securities Lent: This section displays all securities the account is lending as of the statement date, along with the interest rate and collateral amount.
5. Stock Yield Enhancement Program Securities Held at PT: Clients of Interactive Brokers LLC will see an additional section on their statement showing the specific US Treasury held as collateral, including the quantity, price and total value securing the stock loan.
6. Stock Yield Enhancement Program Securities Lent Activity: Displays the loan activity for each security including newly initiated loans (New Loan Allocation), terminated loans (Loan Return Allocation), the quantities and collateral amounts. 
7. Stock Yield Enhancement Program Securities Lent Interest Details: Shows the income received on an individual loan basis including the security, quantity lent, collateral amount, the market-based rate and the interest amount paid to the account. Interest Paid to Customer is calculated by multiplying the Collateral Amount by the Interest Rate on Customer Collateral and dividing by 360 days. Please note: This section will only be displayed if the interest accrual earned by the client exceeds USD 1 for the statement period.   
8. Interest: Income from SYEP for the current month is accrued daily and credited the next month. The credit will appear in the Interest section of the statement, along with other interest credits or charges.

Lending fees received through the Stock Yield Enhancement Program are calculated and accrued daily similar to interest credits. Please note, lending fees will be aggregated and will display as an accrual only when exceeding $1. Interest will post to your cash balance monthly. 

The income that a client receives in exchange for shares lent through the Stock Yield Enhancement Program depends on loan rates established in the over-the-counter securities lending market. These rates can vary significantly, not only by the particular security loaned but also by the loan date. To determine the customer’s portion of these fees, the Market Interest Rate % is applied to the loan collateral. This daily Gross Lending Interest is split equally between PT's clearing firm (IBKR) and the client, as IBKR takes a portion of the gross interest paid in exchange for initiating, managing, and terminating transactions.

For example, assume loan collateral of $10,000 and an annualized Market Interest Rate of 15%. In this case the daily Gross Lending Interest would be $4.16 (($10,000 *.15)/360), of which $2.08 would accrue to the client and $2.08 to IBKR. Lending interest is calculated and accrued daily similar to interest credits.

In the event of any of the following, a stock loan created through the Stock Yield Enhancement Program will be automatically terminated:

• If the client elects to terminate program participation
• Transfer of shares
• Borrowing of a certain amount against the shares
• Sale of shares
• Call assignment/put exercise
• Account closure

Yes. Clients who cancel participation in the SYEP can re-enroll in the program but must wait at least 90 calendar days from the cancellation date before doing so.

There is no way to prevent a stock from being lent out if you are currently participating in the Stock Yield Enhancement Program.

If you wish to restrict some or all of the stocks from being lent out, you would need to opt out of the Program. To do so, please see: How does one terminate Stock Yield Enhancement Program participation?

There is no impact on capital gain treatment upon the sale of shares that have been lent through the Stock Yield Enhancement Program. PT takes steps to prevent SYEP lenders from receiving a payment-in-lieu of a dividend ("PIL"). However, there may be cases where the account receives PIL.

Yes. Your Stock Yield Enhancement Program activity is covered by three separate sections in an activity statement:

• Managed Securities Lent - In this section, cash collateral is listed under Collateral Amount.
• Managed Securities Lent Activity - This section lists each stock loan transaction including Transaction ID, Quantity, Interest Rate on Customer Collateral and Collateral Amount.
• Managed Securities Lent Interest Details - This section lists each stock loan transaction with interest Rate earned by IBKR, Interest Paid to IBKR and Interest Paid on Customer Collateral.

Find more information on the Stock Yield Enhancement Program statement sections in our Reporting Guide.

The first step is to determine whether securities are considered fully-paid for or if they are rehypothecated as collateral for a margin loan balance. A broker who finances client purchases of securities via margin loan is allowed by regulation to loan or pledge as collateral that client’s securities in an amount of 140% of the cash debit balance. For example, if a client maintaining a cash balance of $50,000 buys securities with a market value of $100,000, the debit balance will be $50,000. The broker holds a lien on 140% of that balance or $70,000 of securities. Any securities held by the client in excess of that amount are referred to as excess margin securities ($30,000 in this example) and are required to be segregated unless the client provides authorization to PT to lend through the Stock Yield Enhancement Program. Note that only $30,000 of securities is eligible to be lent via SYEP.

The cash debit balance is determined by first converting all non-USD denominated cash balances to USD and subtracting any short stock sale proceeds (converted to USD as necessary). If the cash balance is negative, then PT will rehypothecate 140% of that balance as collateral for the margin loan. PT does not take into account cash balances maintained in the commodities segment for the purpose of this calculation. For a more detailed explanation, please see here.

The previous day’s settled cash balances are used to determine the amount of the margin lien. Holding certain options positions may increase the amount of the margin lien.  The calculation of excess margin securities takes into account settled positions from the previous day and changes in those positions for the current settlement date.

Example 1: Account without a margin lien

Assume that an account holds $100,000 in cash and no other positions.  The trader purchases stock valued at $90,000. All securities will be deemed fully paid because the account will have a positive settled cash balance of $10,000.

Example 2: Account with a margin lien

Assume that an account holds $80,000, long stock worth $100,000 and short stock worth $100,000. Long securities totaling $28,000 are deemed margin securities and the remainder of $72,000 are deemed to be excess margin securities.

This is determined by subtracting the long stock value and short sale proceeds from the cash balance ($180,000 – $100,000 - $100,000 = -$20,000) and multiplying the resulting debit by 140% ($20,000 * 1.40 = $28,000).

The provisions of the Securities Investor Protection Act of 1970 may not protect you as a lender with respect to securities loan transactions in which you lend your fully-paid Securities to PT through the Stock Yield Enhancement Program. Therefore, the collateral delivered to you (and indicated on your account statement) may constitute the only source of satisfaction of PT's obligation in the event that IBKR fails to return securities.

There is no guarantee that all eligible shares in a given account will be loaned through the Stock Yield Enhancement Program as there may not be a market at an advantageous rate for certain securities, PT may not have access to a market with willing borrowers or PT may not want to loan your shares.

As a participant of the Stock Yield Enhancement Program you are free to sell your loaned stock at any time. Upon the sale, PT recalls the loan from the street and makes normal delivery on your behalf on settlement date. The stock loan is then terminated.

The cash account must meet this minimum equity requirement solely at the point of signing up for the Stock Yield Enhancement Program. If the equity falls below that level thereafter there is no impact upon existing loans or the ability to initiate new loans.

 Yes. The Stock Yield Enhancement Program enrollment process is the same for all eligible accounts, including IRA accounts. 

No, participants in the Stock Yield Enhancement Program do not retain voting rights for shares loaned out. The borrower of the securities has the right to vote or provide any consent with respect to the securities if the Record Date or deadline for voting, providing consent or taking other action falls within the loan term.

The loan will be terminated on T+1 of the action (trade, assignment, exercise) which closed or decreased the position. 

A  halt has no direct impact upon the ability to lend the stock through the Stock Yield Enhancement Program. As long as PT can continue to loan the stock, such loan will remain in place regardless of whether the stock is halted. 

No. Stock Yield Enhancement Program loans can be made in any whole share amount although externally we only lend in multiples of 100 shares. Thus, the possibility exists that we would lend 75 shares from one client and 25 from another should there be external demand to borrow 100 shares.