Shorting US Treasuries

Overview: 

Interactive Brokers clients have the ability to gain direct exposure to US Treasuries on both the short and long side of the market.

 

Order Entry

Orders can be entered via TWS or through IBKR’s Bond Desk.

 

Cost to Borrow

The borrow fee to short US Treasuries is based on IBKR’s borrow cost and is subject to daily change. If the Treasury is borrowed by Interactive Brokers at the General Collateral rate, the customer does not incur a borrow fee.

 

Interest Income

Customers earn Short Credit Interest on their short US Treasury positions based on IBKR’s standard tiered rates.

 

Margin Requirements

Margin1 requirements on Short US Treasury positions are the same as Long US Treasury positions. The requirement is between 1% and 9%, depending on time to maturity. The proceeds of the short sale are not available for withdrawal. The amount available for withdrawal is generally Equity with Loan Value – Initial Margin.

Additional information on fixed income margin requirements can be found here.

 

Commissions

Selling short US Treasuries incurs the same commission cost as buying US Treasuries. IBKR’s commission schedule can be found here.
 

Trading Policy

Minimum short position size is $5M face value per CUSIP due to limitations of the US Treasury borrow market. Once the minimum position size is met, the minimum order increment is $1M for both short sales and buy to covers (as long as the resulting short position remains higher than the $5M face value minimum).

Short Sale Order Examples

Existing US Treasury Short Position Face Value in Account (per CUSIP) Face Value of Short Sale Order Face Value of Resulting Position Order Accepted? Reason
Flat $5,000,000 $5,000,000 Yes Face Value of Resulting position is => $5M
Flat $4,000,000 $4,000,000 No Face Value of Resulting position is < $5M
$5,000,000 $900,000 $5,900,000 No Order increment < $1M
$5,000,000 $1,000,000 $6,000,000 Yes Order increment => $1M

Buy-to-cover orders that will result in a short US Treasury position of less than $5M face value will not be accepted.

Buy to Cover Order Examples

Existing US Treasury Short Position Face Value in Account (per CUSIP) Face Value of Buy to Cover Order Face Value of Resulting Position Order Accepted? Reason
$10,000,000 $5,000,000 $5,000,000 Yes Face Value of resulting position is => $5M
$10,000,000 $6,000,000 $4,000,000 No Face Value of resulting position is < $5M
$10,000,000 $10,000,000 Flat Yes Order increment => $1M

 

Payment in Lieu

When a short US Treasury position is held over the record date of an interest payment, the borrower’s account will be debited a payment-in-lieu of interest equal to the interest payment owed to the lender.

 

Eligible US Treasuries for Shorting

US Treasuries with an outstanding value greater than $14 Billion can be sold short.

US TIPs, STRIPs, TF (Floating Rate Notes) and WITFs (When-Issued Floating Rate Notes) are not available for shorting. Non-US sovereign debt is also not available for shorting.

 

1Trading on margin is only for sophisticated investors with high risk tolerance. You may lose more than your initial investment.
For more information regarding margin loan rates, see ibkr.com/interest

 

Regulation SHO Rule 204, Closeouts, and Introducing Brokers

As a US registered broker-dealer, Interactive Brokers LLC (“IBKR”) is subject to Regulation SHO, a collection of US Securities & Exchange Commission rules relating to short-selling of equity securities. Rule 204 of Regulation SHO places certain requirements on clearing brokers in the event that they fail to deliver securities on settlement date in connection with a sale of those securities. This can happen for a variety of commonplace operational reasons, and does not indicate a problem at the clearing broker. In certain circumstances, Rule 204 may require a clearing broker to not permit shorting a security for a certain period of time (unless sufficient shares of that security are pre-borrowed to cover the order marked as a short sale).

Rule 204(a) requires that a clearing broker, if it fails to deliver on a sale trade on the settlement date, must closeout its fail by buying or borrowing the relevant security a specified number of trading days later (depending on whether the sale was long or short), prior to the opening of the regular trading session on that day.

Rule 204(b) provides that if the clearing broker does not closeout its fail in accordance with Rule 204(a), the broker may not accept short sale orders from its customers in the relevant stock (the stock in which the unclosed-out fail has occurred), or place such orders for its own account, unless it has first borrowed the shares of the relevant stock to cover the new short sale order. This is colloquially known in the securities industry as being in the “penalty box” for the relevant security. This restriction exists until the clearing broker has purchased shares in the amount of the unclosed-out fail, and that purchase has settled.

Any broker that executes trades through that clearing broker, and clears and settles those trades through that clearing broker, is subject to the same Rule 204(b) restriction, as is any broker that executes away from that clearing broker, but intends to clear and settle those trades through the clearing broker.

Rule 204(c) requires clearing brokers to notify brokers from whom they receive trades for clearance and settlement of when they become subject to a short-sale restriction under Rule 204(b), and when that restriction ends. This is so that the notified brokers can avoid executing trades away from the clearing broker that are not permitted under the clearing broker’s short-sale restriction. If you have received a notice from IBKR regarding Rule 204(c), it generally means that IBKR's books and records show that you are an introducing broker or dealer that clears and settles trades through IBKR, and that also has the capability (or your client has such capability) of executing trades at away brokers or dealers for settlement through IBKR. You should not execute any short-sale order at an away broker-dealer in a security which we have notified you is shortsale restricted, unless you have first arranged to pre-borrow sufficient shares of that security through IBKR. For more information on pre-borrowing, please click here or contact us.

The above is a general description of Rule 204 of Regulation SHO, to aid our broker-dealer clients in understanding IBKR's obligations and why certain stocks may become unshortable at certain times irrespective of their availability to be borrowed. It is not legal advice and should not be used as such.

 

Operational Risks of Short Selling

Rate Risk

In order to sell short, IBKR must expect to have shares available to lend you on settlement day, or expect to be able to borrow shares on your behalf on or prior to settlement day, in order to settle your trade. Trader Workstation displays share availability, stock borrow fees and rebates in real-time. These rates are indicative and are subject to change intra-day due to supply/demand and other market conditions. In certain cases, “General Collateral” names which have not previously accrued Hard-To-Borrow fees may become more “special,” leading to the short position holder to be charged a Hard-To-Borrow fee.
 
Trade and Settlement Date Gap
 
Before a customer’s short sale order can be executed, the Interactive Brokers Securities Lending Desk locates the shares needed to fulfill the seller’s delivery obligation to the buyer and displays an indicative rate in TWS for that day.
 
However, brokers do not generally borrow the securities until the settlement date (when delivery to the buyer should be made), which is 2 business days after trade date (T+2). There is a risk that rates increase in the 2 days between the executed short sale and settlement date. The customer will be charged the rate as it exists on the settlement date, as that is when shares are actually borrowed, thereby possibly accruing Hard-To-Borrow fees unexpectedly.
 
Corporate Action
 
Certain corporate actions including (but not limited to) mergers, tender offers, and distributions can lead to spikes in Hard-To-Borrow fees.
 
Announced dividends frequently lead to decreased supply and therefore higher borrow fees in the days leading up to record date. When a company issues a dividend distribution to its holders of record, a borrower of the shares as of that time is listed as the holder and therefore receives the dividend. The dividend is then “claimed” by the lender from the borrower, and credited to lender as a Payment-in-Lieu, or “PIL.” PIL’s are not considered by the IRS to be qualified dividends, so the lender may incur adverse tax consequences as a result of receiving a PIL versus a qualified dividend. As lenders recall their shares to avoid this possibility, the number of loanable shares across the market decreases, leading to a possible rate spike.
 
Short position holders are held liable to the long holder for distributions made by the company including (but not limited to) dividends (regular cash, special cash, shares), rights/warrants, and spin-off’s. This means that you could be liable for a substantial payment (or take on additional significant economic exposure) if you are short at the close business on the day prior to ex-dividend date.
 
Delisting and Trading Halts
 
When a company is delisted from the public markets or trading in that stock is halted by the listing exchange, traders may be unable to cover their short positions because the stock no longer trades. However, the original loan to the borrower is still on record, and can only be closed after shares are cancelled and DTC removes all positions in the shares from participants' accounts or, in the case of a trading halt, the halt is lifted. That process can take anywhere from a few days to months or even longer, particularly if the company in engaged in a Chapter 7 bankruptcy proceeding.
 
In the meantime, the borrower may continue to have to pay Hard-To-Borrow fees on the collateral market value based on the closing price of the last trading day. The minimum mark is $1 per share but can be much higher, depending on how and when the delisting or trading halt occurred.
 
Close-Out and Third-Party Recall
 
In certain situations, a short position may be covered without being directed by the position holder. IBKR strives to avoid buy-in’s where possible, within the limits of its regulatory obligations. Please see the article “Overview of Short Stock Buy-Ins & Close-Outs” for more details.
 
Leveraged ETF and ETN
 
Leveraged Exchange Traded Funds (ETF) and Exchange Traded Notes (ETN) have characteristics which may increase the likelihood of close-out and recall events occurring. The supply of shares available to borrow is influenced by a number of factors not found with shares of common stock. An overview of these factors can be found in “Special Risks Associated with ETN & Leveraged ETF Short Sales”.
 
Short Positions Resulting from Options

Holders of short call options can be assigned before option expiration. When the long holder of an option enters an early exercise request, the Options Clearing Corporation (OCC) allocates assignments to its members (including Interactive Brokers) at random. The OCC reports assignments to IBKR on the day of the long call exercise (T) but after US market hours. As such, option assignments are reflected in IBKR customer accounts on the next business day (T+1), settling on T+2. The assignment causes a sale of the underlying stock on T, which can result in a short position if no underlying shares are held beforehand. Settled short position holders are subject to borrow fees, which can be high. Additionally, if IBKR cannot fulfil the short sale delivery obligation due to a lack of securities lending inventory on settlement date, the short position can be subject to a closeout buy-in.

Due to T+2 settlement mechanics described previously, traditional purchases to cover a short position on T+1 will leave the account with a settled short stock position for at least 1 night (or longer in case of a weekend or holiday).

Long in-the-money Puts are automatically exercised on expiration date. A short position as a result of the exercise carries the same risks as assigned short calls.
 
Example:
 
Assignment of 100 XYZ Call without holding underlying XYZ stock
 
Day   Short Sale Buy to Cover Settled Short Position Borrow Fee Charged?
Monday OCC reports short call assignment to IBKR after market hours. -100 XYZ stock
Trade Date (T)
  Flat No
Tuesday Call assignment and stock sale is reflected in IBKR customer’s account T+1 +100 XYZ stock
Trade Date (T)
 
Flat No
Wednesday   T+2 Settlement Date T+1 -100 Yes
Thursday     T+2 Settlement Date Flat No
 

Special Risks Associated with ETN & Leveraged ETF Short Sales

Introduction
While account holders are always at risk of having a short security position closed out if IB is unable to borrow shares at settlement of the initial trade or bought in if the trade settles and the shares are recalled by the lender thereafter, certain securities have characteristics which may increase the likelihood of these events occurring. Two examples are leveraged Exchange Traded Funds (ETF) and Exchange Traded Notes (ETN), where the supply of shares available to borrow can be influenced by a number of factors not found with shares of common stock. An overview of these securities and these factors is provided below.


Overview
As background, an ETF is a security organized as a pooled investment vehicle that can offer diversified exposure or track a particular index by investing in stocks, bonds, commodities, currencies, options or a blend of assets. An ETF is similar to a mutual fund in that each share of an ETF represents an undivided interest in the underlying assets of the fund. However, unlike a mutual fund in which orders are only processed at a price determined at the end of the day, ETF shares are repriced and trade throughout the day on an exchange. To balance the supply and demand of shares and ensure that secondary market prices approximate the market value of the underlying assets, ETF issuers allow Authorized Participants (typically large broker-dealers) to create and redeem ETF shares in large blocks, typically 50,000 to 100,000 shares. While many ETFs invest solely in securities, others use debt or derivatives to track and/or magnify exposure to an index. The ProShares Ultra VIX Short-Term Futures ETF ( symbol: UVXY) is one example of a widely traded leveraged ETF.

ETNs are also securities that are repriced and trade throughout the day on an exchange and are designed to provide investors with a return that corresponds to an index. Unlike ETFs, however, ETNs are unsecured debt instruments and do not represent an interest in an underlying pool of assets. They do not pay interest like traditional debit instruments, but rather a promise to pay a specific return that typically corresponds to an index or benchmark. The Barclays iPath® S&P 500 VIX Short-Term Futures™ ETN (symbol: VXX) is one example of a widely traded ETN.

The supply of shares available to borrow in order to initiate or maintain a short sale position may be less stable for certain leveraged ETFs and ETNs, including UVXY and VXX, due to the following factors:

- Limited Authorized Participants: The number of Authorized Participants willing to issue ETFs, particularly those that invest in derivatives (e.g., futures contracts, swap agreements and forward contracts) rather than securities and seek performance equal to a multiple (i.e., 2x) or an inverse multiple (i.e., -2x) of a benchmark may be limited. Moreover, Authorized Participants have no legal obligation to create shares and may elect not to do so to minimize their exposure as a dealer. 

- No Authorized Participants: As ETN shares represent credit instruments, the supply of such shares is determined solely by the issuing financial institution and Authorized Participants are not involved with the creation or redemption of shares. The ETN issuer typically reserves the right to limit, restrict or stop selling additional shares at any time.

- Limited Holding Period: Certain leveraged ETFs and ETNs seek to match the performance of a benchmark index for a single day rather than an extended period. They are principally used by institutional investors and other traders looking to obtain short-term exposure to an asset class, hedge other investments in a portfolio or invest as a way to gain interim exposure to a particular market while gradually investing directly in that market. These factors can result in a higher rate of turnover and less stability of share inventory available to lend for short sales. 

- Margin Considerations: Shares made available for lending to short sellers often originate from brokers who maintain a lien on the shares as they’ve financed the purchase of the shares on behalf of clients via margin loans. Clients purchasing shares using borrowed funds are subject to regulatory margin requirements, compliance to which depends in part upon the value of the shares supporting the loan. As certain leveraged  ETFs/ETNs are designed to provide returns in multiples of their benchmark, the inherent volatility of these products may diminish clients’ ability to maintain the position and, in turn, the broker’s ability to lend the shares.

 

Monitoring Stock Loan Availability

Overview: 

IBKR provides a variety of methods to assist account holders engaged in short selling with monitoring inventory levels and borrow costs/rebates. The level of detail available, the time frame covered and the manner in which the information is accessed vary by method and a brief overview of each is provided below.

Public Website
Interested parties may query the IBKR website for stock loan data. To start, click here and scroll down to the section titled "Stocks Available". Click the section to expand it and select the country in which the stock is listed. If the number of available issues exceeds that which can be reasonably presented on a single page, results will be organized by symbol in groups, with hypertext links allowing further drill-down. A quick search box allowing direct query for a given symbol is also provided. Query results include the product description, currency of denomination and a link titled “Check Availability” which displays the quantity of shares available to borrow upon entering your login credentials. 

 

Public FTP

Windows

Windows Explorer

  1. Open windows explorer (Start > Computer)
  2. With "Computer" selected on the left, right click an empty space on the right side of the window and choose “Add a network location”
  3. When the wizard prompts for a network address, enter “ftp://shortstock: @ftp3.interactivebrokers.com” and press next
  4. Give the connection a name of your choosing and press next
  5. File explorer should now open and display all of the files in the ftp location.

Command Prompt

  1. Go to Start > Windows System > Command Prompt
  2. Type "ftp" and press enter (the prompt will change to an ftp> prompt)
  3. Type “open ftp3.interactivebrokers.com”
  4. When prompted, enter the username “shortstock” and leave the password empty.
  5. Use the “dir” command to show the files in the directory
  6. Use the “get filename.txt” to retrieve the desired file

MacOS

  1. Open Finder
  2. From the “Go” menu choose “Connect to Server”
  3. Enter “ftp://shortstock: @ftp3.interactivebrokers.com” and press the + button to add to your favorites.
  4. Click “Connect”
  5. If prompted, the username should be “shortstock” and the password should be left empty.
  6. Click "Connect"
  7. If all steps were done correctly the finder window should display all of the files in the ftp location.

Linux

Terminal

  1. Open a Terminal window
  2. Type “ftp shortstock@ftp3.interactivebrokers.com”
  3. When prompted for a password, press enter
  4. Type “ls” to list the contents of the ftp location
  5. Type “get filename.txt” to get the desired file.
  6. Type “bye” to end the ftp session

Outlined below is a snapshot of the sample file output which includes the stock symbol, currency of denomination, name, contract identifiers (IBKR’s and the ISIN), rebate & fee rates and shares available. This file may be also imported into applications such as Excel for sorting, filtering and analytical purposes.

 

Short Stock Availability (SLB) Tool
The SLB tool is made available to IBKR account holders through Client Portal. Login and select the Support section followed by Short Stock (SLB) Availability. This tool allows one to query information on a single stock as well as at a bulk level. Single stock searches can be performed by symbol/exchange, ISIN or CUSIP numbers. At the single security level, query results include the quantity available, number of lenders and indicative rebate rate (which if negative, infers a borrowing cost expressed as an annual percentage rate and, if positive, the interest rebate paid on cash proceeds securing the loan in excess of the minimum threshold). Information regarding the quantity of shares available to borrow throughout the day for the most current and past half hour increments is also made available.

 

In addition, borrowers interested in the trend of rates over the prior 10 day period can view the minimum, maximum and mean rates for each day.

This tool also allows one to upload a text file (with symbol/exchange or ISIN detail) and search for availability of multiple stocks in bulk within a single query. These bulk requests will then generate a .CSV file similar to the sample file output made available through the public FTP site.

Hong Kong Short Reporting Obligations

This Article is a general summary of the Hong Kong Securities and Futures Commission’s (“SFC”) regulatory position relating to the short selling and the carrying of large short positions in selected HK listed securities. The following information is being provided as a service convenience and IB does not guarantee the information for either accuracy or completeness. There may be subsequent changes to the regulations, and investors with large short positions should refer directly to the SFC regulations on the SFC website. 

 

Overview

  • Hong Kong regulations now require beneficial owners of shares in selected HK listed stocks to report each week short positions that exceed the threshold of HKD 30 million or 0.02% of market capitalization on the constituent stocks of the Hang Seng Index, the Hang Seng China Enterprises Index and other financial companies specified by the SFC. A list of affected of stocks can be found here:

http://www.sfc.hk/sfc/html/EN/research/short-position-reporting/specified-shares.html 

  • Investors with applicable positions should register directly with the SFC. Registration and guidance on the registration process can be found here.
  • Reporting is expected on a weekly basis, but the second business day of the following week.
  • Links for the registering and reporting can be found here:

https://portal.sfc.hk/dsp/gateway/welcome?locale=en

Guidelines, Instructions and FAQ's:

SFC announcement with links to legislation

Short position forms, guidelines, reference material and list of specified shares

Link to subscribe to SFC alert service (choose Short Position Reporting Related Matters)

Legislation and Rules

For further details, please refer to the SFC website: www.sfc.hk and/or contact them via email with specific questions at shortpositions@sfc.hk

 

 

IBKR Stock Yield Enhancement Program

PROGRAM OVERVIEW

The Stock Yield Enhancement Program provides the opportunity to earn extra income on the fully-paid shares of stock held in your account by allowing IBKR to borrow shares from you in exchange for collateral (either U.S. Treasuries or cash), and then lend the shares to traders who want to sell them short and are willing to pay interest to borrow them. For additional information on the Stock Yield Enhancement Program please see here or review the Frequently Asked Questions page.

 

HOW TO ENROLL IN THE STOCK YIELD ENHANCEMENT PROGRAM

To enroll, please login to the Client Portal. Once logged in, click the User menu (head and shoulders icon in the top right corner) followed by Manage Account. In the Configuration section, click the Configure (gear) icon next to the Stock Yield Enhancement Program. Select the checkbox on the next screen and click Continue. You will then be presented with the requisite forms and disclosures needed to enroll in the program. Once you have reviewed and signed the forms, your request will be submitted for processing. Please allow 24-48 hours for enrollment to become active.

 

 

For enrollment via Classic Account Management, please click on the below buttons in the order specified.

 

 

Stock Yield Enhancement Program FAQs

What is the purpose of the Stock Yield Enhancement Program?
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 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.

 

What are fully-paid and excess margin securities?
Fully-paid securities are securities in a customer’s account that have been completely paid for. Excess margin securities are securities that have not been completely paid for, but whose market value exceeds 140% of the customer’s margin debit balance.

 

How is the income received by a customer on any given Stock Yield Enhancement Program loan transaction determined?
The income which a customer receives in exchange for shares lent depend upon 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, IBKR pays interest to participants on their collateral at a rate that approximates 50% of the amounts earned by IBKR for lending the shares.

 

How is the amount of collateral for a given loan determined?
The collateral (either U.S. Treasuries or cash) underlying the security loan and used for determining interest payments is determined using industry convention whereby the closing price of the stock is multiplied by a certain percentage (generally 102-105%) and then rounded up to the nearest dollar/cent/pence/etc. There are different industry conventions per currency. For example, a loan of 100 shares of a USD stock which closes at $59.24 would be equal to $6,100 ($59.24 * 1.02 = $60.4248; round to $61, multiply by 100). Below is a chart of the various industry conventions per currency:

USD 102%; rounded up to the nearest dollar
CAD 102%; rounded up to the nearest dollar
EUR 105%; rounded up to the nearest cent
CHF 105%; rounded up to the nearest rappen
GBP 105%; rounded up to the nearest pence
HKD 105%; rounded up to the nearest cent

For more information, please see KB1146.

 

How and where is the collateral held for loans in the Stock Yield Enhancement Program?

For IBLLC customers the collateral will be held in the form of either cash or U.S. Treasury securities and will be transferred for safekeeping to IBLLC’s affiliate, IBKR Securities Services LLC (“IBKRSS”). The collateral for your loans under the Program will be held by IBKRSS in an account for your benefit over which you will have a perfected first priority security interest. In the event of a default by IBLLC, you will be able to obtain access to the collateral through IBKRSS directly, without going through IBLLC. Please reference the Securities Account Control Agreement for additional details here. For non-IBLLC customers the collateral will be held and protected by the entity carrying the account. For example, IBIE accounts will have their collateral held and protected at IBIE.

 

How do long sales, transfers of securities lent via the IBKR Stock Yield Enhancement Program or un-enrollment affect interest?

Interest ceases to accrue on the next business day after the trade date (T+1). Interest also ceases to accrue on the next business day after the transfer input or un-enrollment date.

 

What are the eligibility requirements for participation in the IBKR Stock Yield Enhancement Program?

ELIGIBLE ENTITIES
IB LLC
IB UK (excluding SIPP accounts)
IB IE
IB CE
IB HK
IB Canada (excluding RRSP/TFSA accounts)

 

ELIGIBLE ACCOUNT TYPES
Cash (minimum equity over $50,000 on enrollment date)
Margin
Financial Advisor Client Accounts*
Introducing Broker Clients Accounts: Fully Disclosed and Non-Disclosed*
Introducing Broker Omnibus Accounts
Separate Trading Limit (STL)

*Enrolled account must meet requirements in regards to margin account or cash account minimum equity.

IB Japan, IB Europe SARL, IBKR Australia and IB India customers are not eligible. Japanese and Indian clients maintaining accounts with IB LLC are eligible.

In addition, Financial Advisor client accounts, fully disclosed IBroker clients and Omnibus Brokers who meet the above requirements can participate. In the case of Financial Advisors and fully disclosed IBrokers, the clients themselves must sign the agreements. For Omnibus Brokers, the broker signs the agreement.

 

Are IRA accounts eligible to participate in the Stock Yield Enhancement Program?
Yes.

 

Are partitions of IRA accounts managed by Interactive Brokers Asset Management eligible to participate in the Stock Yield Enhancement Program?
No.

 

Are UK SIPP accounts eligible to participate in the Stock Yield Enhancement Program?
No.

 

What happens if equity in a participating cash account falls below the $50,000 qualifying threshold?
The cash account must meet this minimum equity requirement solely at the point of signing up for the program. If the equity falls below that level thereafter there is no impact upon existing loans or the ability to initiate new loans.

 

How do I enroll in the IBKR Stock Yield Enhancement Program?
To enroll, please login to the Client Portal. Once logged in, click the User menu (head and shoulders icon in the top right corner) followed by Manage Account. In the Configuration section, click the Configure (gear) icon next to Stock Yield Enhancement Program. Select the checkbox on the next screen and click Continue. You will then be presented with the requisite forms and disclosures needed to enroll in the program. Once you have reviewed and signed the forms, your request will be submitted for processing. Please allow 24-48 hours for enrollment to become active.

 

How does one terminate Stock Yield Enhancement Program participation?
To un-enroll, please log into the Client Portal. Once logged in, click the User menu (head and shoulders icon in the top right corner) followed by Manage Account. In the Configuration section, click the Configure (gear) icon next to Stock Yield Enhancement Program. Uncheck the checkbox on the next screen and click Continue. Your request will be submitted for processing. Please allow 24-48 hours for the un-enrollment request to be fully processed.
 

 

If an account signs up and un-enrolls at a later time, when can it be re-enrolled into the program?
After un-enrollment, the account may not re-enroll for 90 calendar days.

 

What types of securities positions are eligible to be lent?

US Market EU Market HK Market CAD Market
Common Stock (exchange listed, PINK and OTCBB) Common Stock (exchange listed) Common Stock (exchange listed) Common Stock (exchange listed)
ETF ETF ETF ETF
Preferred Stock Preferred Stock Preferred Stock Preferred Stock
Corporate bonds*      

*Municipal bonds are not eligible.

 

Is there any restriction on lending stocks which are trading in the secondary market following an IPO?
No, as long as the account does not have any restrictions in place for eligible securities held in the account.

 

How does IBKR determine the amount of shares which are eligible to be loaned?
The first step is to determine the value of securities, if any, which IBKR maintains a margin lien upon and can lend without client participation in the Stock Yield Enhancement Program. 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 up to 140% of the cash debit balance. For example, if a client maintaining a cash balance of $50,000 buys securities having a market value of $100,000, the debit or loan balance will be $50,000 and 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 IBKR to lend through the Stock Yield Enhancement Program.

The debit balance is determined by first converting all non-USD denominated cash balances to USD and then backing out any short stock sale proceeds (converted to USD as necessary). If the result is negative then we free up 140% of that negative number. In addition, cash balances maintained in the commodities segment or for spot metals and CFDs are not considered. For a more detailed explanation please see here.

EXAMPLE 1: Customer is long EUR 100,000 in a USD Base Currency account with a EUR.USD rate of 1.40. Customer purchases USD denominated stock valued at $112,000 (EUR 80,000 equivalent). All securities are deemed fully-paid as cash balance as converted to USD is a credit.

Component EUR USD Base (USD)
Cash 100,000 (112,000) $28,000
Long Stock   $112,000 $112,000
NLV     $140,000

EXAMPLE 2: Customer holds long USD of 80,000, long USD denominated stock of $100,000 and short USD denominated stock of $100,000. Long securities totaling $28,000 are deemed margin securities and the remainder of $72,000 excess margin securities. This is determined by subtracting the short stock proceeds from the cash balance ($80,000 - $100,000) and multiplying the resultant debit by 140% ($20,000 * 1.4 = $28,000)

Component Base (USD)
Cash $80,000
Long Stock $100,000
Short Stock ($100,000)
NLV $80,000

 

Will IBKR lend out all eligible shares?
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, IBKR may not have access to a market with willing borrowers or IBKR may not want to loan your shares.

 

Are Stock Yield Enhancement Program loans made only in increments of 100?
No. 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.

 

How are loans allocated among clients when the supply of shares available to lend exceeds the borrow demand?
In the event that the demand for borrowing a given security is less than the supply of shares available to lend from participants in the Stock Yield Enhancement Program, loans will be allocated on a pro rata basis. For example, if the aggregate Stock Yield Enhancement Program supply is 20,000 shares of XYZ and demand is for 10,000 XYZ, each client will lend 50% of their eligible shares.

 

Are shares loaned only to other IBKR clients or to other third parties?
Shares may be loaned to both IBKR clients and to third parties.

 

Can the Stock Yield Enhancement Program participant determine which shares IBKR can lend?
No. The program is entirely managed by IBKR who, after determining those securities, if any, which IBKR is authorized to lend by virtue of a margin loan lien, has the discretion to determine whether any of the fully-paid or excess margin securities can be loaned out and to initiate the loans.

 

Are there any restrictions placed upon the sale of securities which have been lent through the Stock Yield Enhancement Program?
Loaned shares may be sold at any time, without restriction. The shares do not need to be returned in time to settle your sale of the share and proceeds from the sale are credited to the client’s account on the normal settlement date. In addition, the loan will be terminated on the open of the business day following the security sale date.

 

Can a client write covered calls against stock which has been loaned out through the Stock Yield Enhancement Program and receive the covered call margin treatment?
Yes. A loan of stock has no impact upon its margin requirement on an uncovered or hedged basis since the lender retains exposure to any gains or losses associated with the loaned position.

 

What happens to stock which is the subject of a loan and which is subsequently delivered against a call assignment or put exercise?
The loan will be terminated on T+1 of the action (trade, assignment, exercise) which closed or decreased the position.

 

What happens to stock which is the subject of a loan and which is subsequently halted from trading?
A halt has no direct impact upon the ability to lend the stock and as long as IBKR can continue to loan the stock, such loan will remain in place regardless of whether the stock is halted.

 

Can the collateral from a loan be swept to the commodities segment to cover margin and/or variation?
No. The collateral securing the loan never impacts margin or financing.

 

What happens if a program participant initiates a margin loan or increases an existing loan balance?
If a client maintains fully-paid securities which have been loaned through the Stock Yield Enhancement Program and subsequently initiates a margin loan, the loan will be terminated to the extent that the securities do not qualify as excess margin securities. Similarly, if a client maintaining excess margin securities which have been loaned through the program increases the existing margin loan, the loan may again be terminated to the extent that the securities no longer qualify as excess margin securities.

 

Under what circumstances will a given stock loan be terminated?
In the event of any of (but not limited to) the following, a stock loan 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

 

Do participants in the Stock Yield Enhancement Program receive dividends on shares loaned?
Stock Yield Enhancement Program shares that are lent out are generally recalled from the borrower before ex-date in order to capture the dividend and avoid payments in lieu (PIL) of dividends. However, it is still possible to receive a PIL.

 

Do participants in the Stock Yield Enhancement Program retain voting rights for shares loaned?

No. 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.

 

Do participants in the Stock Yield Enhancement Program receive rights, warrants and spin-off shares on shares loaned?

Yes. The lender of the securities will receive any rights, warrants, spin-off shares and distributions made on loaned securities.

 

How are loans reflected on the activity statement?

Loan collateral, shares outstanding, activity and income is reflected in the following 6 statement sections:


1. Cash Detail – details 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 – for each stock details total Shares at IBKR, the number of Shares Borrowed, the number of Shares Lent and the Net Shares (=Shares at IBKR + Shares Borrowed - Shares Lent). 

 

3. IBKR Managed Securities Lent (Stock Yield Enhancement Program) – lists for each stock loaned through the Stock Yield Enhancement Program the Quantity of shares loaned, the Interest Rate (%). 

3a. IBKR Managed Securities Collateral Held at IBSS (Stock Yield Enhancement Program) – IBLLC customers will see an additional section on their statement showing the specific US Treasury held as collateral, the quantity, price and total value securing the stock loan.

 

4. IBKR Managed Securities Lent Activity (Stock Yield Enhancement Program) – details the loan activity for each security including Loan Return Allocations (i.e., terminated loans); New Loan Allocations (i.e., initiated loans); the share Quantity; the Net Interest Rate (%); Interest Rate on Customer Collateral (%) and the Collateral Amount. 

 

5. IBKR Managed Securities Lent Activity Interest Details (Stock Yield Enhancement Program) – details on an individual loan basis including the Interest Rate Earned by IBKR (%); the Income Earned by IBKR (represents the total income IBKR earns from the loan which is equal to {Collateral Amount * Interest Rate}/360); the Interest Rate on Customer Collateral (represents about half of the income IB earns on the loan) and Interest Paid to Customer (represents the interest income earned on a client’s collateral)

Note: This section will only be displayed if the interest accrual earned by the client exceeds USD $1 for the statement period.   

 

6. Interest Accruals – the interest income is accounted for here as an interest accrual and is treated as any other interest accrual (aggregated but only displayed as an accrual when exceeding $1 and posted to cash monthly). For year-end reporting purposes, this interest income will be reported on Form 1099 issued to U.S. taxpayers.

 

India Intra-Day Shorting Risk Disclosure

Interactive Brokers currently offers the ability to short sell stocks before taking delivery on an intra-day basis. In accordance with IB’s intra-day shorting rules, traders are required to deliver shares sold or close short stock positions prior to the end of the trading session. 

Should traders establish a short stock position intra-day and still hold the position ten minutes prior to the end of the trading session at 15:20 IST, Interactive Brokers may, on a best efforts basis, close the position on your behalf. If the position is not closed by the end of the day and the shares are not delivered by the customer before settlement, the loss on account of auction will be borne by the customer. Please note that prices in the auction market are highly variable and typically not favorable compared to the normal market.

It is important to note, IB will not take into consideration any closing orders for short stock positions placed by the customer which may still be working. If your account holds a short position ten minutes prior to the end of the trading session and you have placed working orders to close those positions, there is the possibility your closing order will execute and that IB will act to close out your short position.  In this situation you will be responsible for both executions and will need to manage your long position accordingly.

A fee of INR 2,000 will be charged for this manual processing in addition to any external penalties in the case of short stock positions resulting in auction trades.  As such, we strongly urge customers to monitor their positions and take appropriate action themselves in order to avoid this.

Reg. SHO Short Sale Bid Test

Effective November 10, 2010, an amendment to SEC Reg. SHO goes into effect which will place certain restrictions on short selling when a given stock is experiencing significant downward price pressure.  This amendment, referred to as the alternative uptick rule (Rule 201) introduces a circuit breaker which takes effect wherever the primary listing market declares that a stock has declined 10% or more from the prior day’s closing price. 

Once the circuit breaker has been triggered, a Price Restriction is imposed which prohibits the display or execution of a short sale transaction if the order price is at or below the current national best bid. As a result, short sellers will not be allowed to act as liquidity takers when the Price Restriction applies and can only participate as liquidity providers adding depth to the market.  Individuals owning and attempting to sell a security subject to a Price Restriction (i.e., long sellers) are afforded a priority over short sellers in that while they are similarly prohibited from displaying or executing a sale transaction at a price below the current national best bid, they may display or execute orders at the bid.  Accordingly, long sellers are allowed to act as liquidity takers. 

The Price Restriction will apply to all short sale orders in that security for the remainder of the day as well as the following trading day.  Note that while the Price Restriction can only be triggered during regular trading hours, the restriction itself extends beyond regular trading hours on both the first and second days. In addition, there is no limit on the number of consecutive days in which a primary listing market can trigger a Price Restriction. If a stock currently subject to a Price Restriction again declines 10% or more from the prior day’s closing price, the restriction will be re-triggered for the remainder of that day as well as the following trading day.  

Rule 201 applies to all National Market System (NMS) securities; that is, stocks listed on a U.S. stock exchange whether traded on an exchange or in the over-the-counter market.  It does not apply to stocks which are traded only on the OTCBB and/or PINK nor stocks of U.S. companies which are executed on a non-U.S. exchange.

 

Example: Assume hypothetical stock XYZ closed yesterday at $10.00 and today reports a trade at $8.99 (down 10.1%) with a NBBO of $8.98 x $9.00. As the stock has declined by greater than 10%, the primary listing market would trigger the circuit breaker, effectively prohibiting the display or execution of a short sale order at $8.98 or less even if the order was a market order or had a limit price below $8.98.  The short sale order may only be displayed or executed at $8.99 or higher (assuming the stock trades in one penny increments). A long sale order could only be displayed or executed at $8.98 or higher. This Price Restriction would remain in effect for the remainder of today and tomorrow (assuming no subsequent price declines of 10% or more).

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