Securities Lending Income Calculator

Understanding the securities lending income calculator — concept and principle

Many brokers offer to lend the shares in your account to short sellers and other borrowers in exchange for a fee, which is shared between the broker and you. This calculator estimates the income from lending a given value of shares at an annual lending fee for a number of days, and shows the gross fee, the broker's share, your share and the effective annual yield on the shares.

How it is calculated

• Gross lending fee = value of shares lent × annual fee rate × days ÷ 365.
• Your income = gross fee × your share of the fee.
• Broker's share = gross fee × (1 − your share).
• Annualised yield to you = annual fee rate × your share.

The fee rate is quoted as a percentage per year of the value of the shares on loan.

The principle

Borrowers pay to borrow shares because they need them, usually to sell short or to settle trades. The fee works like rent: proportional to the value borrowed and the time it is out on loan. Fees depend on supply and demand. Widely held large-cap stocks are easy to borrow and earn very little, often a fraction of a percent a year, while hard-to-borrow stocks can command much higher rates for a while. The borrower typically posts collateral, and you generally remain exposed to the share price.

Worked example

Default inputs: $50,000 of shares, fee 1.2% a year, your share 50%, 90 days.

1. Gross fee: 50,000 × 0.012 × 90 ÷ 365 = $147.95.
2. Your income: 147.95 × 50% = $73.97.
3. Broker's share: $73.97.
4. Annualised yield to you: 1.2% × 50% = 0.6%.

How to read the result

Compare the yield with what you give up: lent shares may lose voting rights while on loan, and dividends are often replaced by a cash payment in lieu, which may be taxed differently. A high fee usually signals heavy short interest, which can mean a volatile stock. Revenue splits vary by broker, so a higher share for you can matter more than small differences in rates.

Common mistakes

• Assuming the quoted rate stays the same; rates change daily.
• Applying a hard-to-borrow rate to ordinary large-cap holdings.
• Ignoring the tax treatment of payments in lieu of dividends.
• Forgetting that shares can be recalled or returned at any time.

Frequently asked questions

Is securities lending risky?

The main risk is the borrower or broker failing; collateral reduces but may not remove it.

Can I still sell lent shares?

Usually yes; the broker recalls or replaces the shares.

Why do some stocks pay high lending fees?

When many investors want to short a stock and few shares are available, borrowing becomes expensive.

Sources: FINRA Rule 4330, Customer Protection — Permissible Use of Customers' Securities