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Suppose I have a brokerage account and I am long on a stocks very heavily and there are short sellers who need this stocks from my broker. There are two ways a stock broker can lend securities held in an account.

  1. from an account that has securities lending and is long on position
  2. from any margin account that has the long position

    I assume if the investor just has margin ( but not Security lending) enabled on his/her account , he/she does not receive the lending fee on his/her long position that was borrowed by the broker( to lend to some other customer )

But if the investor has margin and also Security lending, then the broker will be paying the lending fee to the investor who is long if his/her position is being borrowed.

So the question is what an investor is giving up to get that additional lending fee?

I could not find much on internet. and also without opening an additional account, if I can find, What are the pros-cons and differences and similarities between Securities lending and Margin?

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I'm not sure why you're asking about the pros and cons as well as the differences and similarities between Securities lending and Margin. Though intertwined, they're separate issues.

When someone wants to short a stock, his broker borrows it from an in house account. If no shares are available in house, he borrows it from another broker. This assumes that the shares are borrowable somewhere.

The short seller is charged a borrow fee which can be as low as 25 basis points per year for very liquid large cap stocks or in rare cases, over 500% (see TLRY when it doubled to $300 in a week, last year). Some brokers share this fee with the lender but AFAIK, not many. As an aside, the short seller is obligated to pay the lender the dividend if he is short the stock on the ex-div date.

Obviously, the short seller can only do this in a margin account. He must have the appropriate margin in his account to support the trade (cash and/or marginable securities). Reg T margin in the U.S. is 150% of the value of the short sale at the time the sale is initiated. This is a bit of double talk because the short sale proceeds are included in this amount. In simple talk, your account must contain 50% of the value of the short sale ($5k needed to short $10k).

I can't source it but I recall reading that share owners can restrict the lending of shares from their account. It's possible that this may only apply to institutions with large positions who do so in order to support share price and/or enhance the possibility of a short squeeze.

  • thanks, main part of my question is from the perspective of the long position of a customer. Suppose I have two brokerage accounts( both with margin enabled) with same broker, and both has 200 QQQ in each account, in one of the account is allowing the "Securities lending", So broker can loan from the account that is only margin enabled and also from the account that has both margin and security lending. In later case the broker will be paying the customer, but nothing is free so what the customer is giving away – Raj Oct 9 at 14:40
  • If securities are loaned from a retail account, the borrower pays a borrow fee. Whether the lender of the shares receives a portion of this borrow fee is dependent on the policy of the lending broker. I have no clue what goes on, on the institutional level. – Bob Baerker Oct 9 at 18:04

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