Fully Paid (Equity) Lending Program?

[Brian4Liberty]

Hmm. This seems like it might be related to meme stocks and naked shorts...

What is the Fully Paid Lending Program?

Fidelity's Fully Paid Lending Program provides you with the opportunity to lend securities in your portfolio and earn income. If there is demand in the securities lending market, generally due to short selling, scarce lending supply, or corporate events, Fidelity may borrow certain eligible securities until either you or Fidelity elect to close the loan.

https://www.fidelity.com/trading/fully-paid-lending#

 

[Pauls' Revere]

Yep, sounds about right. But in theory could be any shares that shorty needs to cover. High demand for said shares I would imagine demand a higher premium. I believe Interactive Brokers follows a similar model. Someone buys the shares and "lends" them to this market model so others that can't find said shares can use the IOU to short or maybe use in the options. This amounts to a house of cards imo.

 

[Brian4Liberty]

Yep, sounds about right. But in theory could be any shares that shorty needs to cover. High demand for said shares I would imagine demand a higher premium. I believe Interactive Brokers follows a similar model. Someone buys the shares and "lends" them to this market model so others that can't find said shares can use the IOU to short or maybe use in the options. This amounts to a house of cards imo.

Yep, could be any any shares, but some of the things that have happened with the meme stocks may have resulted in this new development.

Seems suspicious. These programs weren’t in place before, so it seems like a way to expand some very shady practices.

 

[Pauls' Revere]

Yep, some of those stocks have a high Short Interest percentages but some have dedicated shareholders who refuse to sell and thus the Cost to Borrow for shorty creeps higher and higher.

October surprise?

 

[Krugminator2]

Yep, could be any any shares, but some of the things that have happened with the meme stocks may have resulted in this new development.

Seems suspicious. These programs weren’t in place before, so it seems like a way to expand some very shady practices.

Not shady. Been in place at brokers with active traders forever. Existed long before meme stocks.

Yep, sounds about right. But in theory could be any shares that shorty needs to cover. High demand for said shares I would imagine demand a higher premium. I believe Interactive Brokers follows a similar model. Someone buys the shares and "lends" them to this market model so others that can't find said shares can use the IOU to short or maybe use in the options. This amounts to a house of cards imo.

That is how shorting works. Been in place for centuries. Works just fine.

 

[Brian4Liberty]

Not shady. Been in place at brokers with active traders forever. Existed long before meme stocks.
...

I don't know about that. I do know that it is being pushed for the first time. This is the first time I've seen this offer, and I've had brokerage accounts for a long time.

 

[Krugminator2]

I don't know about that. I do know that it is being pushed for the first time. This is the first time I've seen this offer, and I've had brokerage accounts for a long time.

Fidelity doesn't cater to active traders who short so I can't imagine a ton of demand for it.

Interactive Brokers has had a borrow/loan feature as far I can remember. So at least since 2009 or so. https://www.interactivebrokers.com/...ializedorderentry/about_stock_borrow_loan.htm

 

[Brian4Liberty]

Fidelity doesn't cater to active traders who short so I can't imagine a ton of demand for it.

Interactive Brokers has had a borrow/loan feature as far I can remember. So at least since 2009 or so. https://www.interactivebrokers.com/...ializedorderentry/about_stock_borrow_loan.htm

I haven’t used Interactive Brokers. I know Schwab is pushing it all of a sudden too. Haven't seen anything from E*Trade or TD Ameritrade, but it doesn't mean they don’t have that feature.

 

[Pauls' Revere]

I don't know about that. I do know that it is being pushed for the first time. This is the first time I've seen this offer, and I've had brokerage accounts for a long time.

Your broker should give you option to deny share lending. If they don't, imo I would switch to one that does.

 

[Pauls' Revere]

It gets shady when synthetics and naked shorting are used and entangled with this lending of shares. A regular short position I don't have issue with.

 

[Pauls' Revere]

https://www.marketwatch.com/story/t...estors-might-expect-11663170963?siteid=yhoof2

A growing number of traders, academics, and bond-market gurus are worried that the $24 trillion market for U.S. Treasury debt could be headed for a crisis as the Federal Reserve kicks its “quantitative tightening” into high gear this month.

With the Fed doubling the pace at which its bond holdings will “roll off” its balance sheet in September, some bankers and institutional traders are worried that already-thinning liquidity in the Treasury market could set the stage for an economic catastrophe — or, falling short of that, involve a host of other drawbacks.

In corners of Wall Street, some have been pointing out these risks. One particularly stark warning landed earlier this month, when Bank of America BAC, -0.38% interest-rate strategist Ralph Axel warned the bank’s clients that “declining liquidity and resiliency of the Treasury market arguably poses one of the greatest threats to global financial stability today, potentially worse than the housing bubble of 2004-2007.”

How could the normally staid Treasury market become ground zero for another financial crisis? Well, Treasurys play a critical role in the international financial system, with their yields forming a benchmark for trillions of dollars of loans, including most mortgages.

Around the world, the 10-year Treasury yield TMUBMUSD10Y, 3.431% is considered the “risk-free rate” that sets the baseline by which many other assets — including stocks — are valued against.

But outsize and erratic moves in Treasury yields aren’t the only issue: since the bonds themselves are used as collateral for banks seeking short-term financing in the “repo market” (often described as the “beating heart” of the U.S. financial system) it’s possible that if the Treasury market seizes up again — as it has nearly done in the recent past — various credit channels including corporate, household and government borrowing “would cease,” Axle wrote.

 

[Brian4Liberty]

...
But outsize and erratic moves in Treasury yields aren’t the only issue: since the bonds themselves are used as collateral for banks seeking short-term financing in the “repo market” (often described as the “beating heart” of the U.S. financial system) it’s possible that if the Treasury market seizes up again — as it has nearly done in the recent past — various credit channels including corporate, household and government borrowing “would cease,” Axle wrote.

Not sure I'm following this part. Seems to me that the bond market will only "seize-up" if yields are price controlled. A bond should always be able to be sold on a true competitive market if the price is allowed to drop, and the yield is allowed to rise.

Now dropping prices could be a problem for bond funds, but isn't that to be expected? (Unless it is a money market fund that breaks the buck).

 

[Pauls' Revere]

Not sure I'm following this part. Seems to me that the bond market will only "seize-up" if yields are price controlled. A bond should always be able to be sold on a true competitive market if the price is allowed to drop, and the yield is allowed to rise.

Now dropping prices could be a problem for bond funds, but isn't that to be expected? (Unless it is a money market fund that breaks the buck).

I think they are referring to the repo market and overnight rate for trading and other financial maneuvers. But if they use their bonds as collateral and you lend me an overnight amount of funds but then the rate changes overnight I my think twice about borrowing this way. The volatility wouldn't be conducive to take the risk.

my .02

 

[Brian4Liberty]

I think they are referring to the repo market and overnight rate for trading and other financial maneuvers. But if they use their bonds as collateral and you lend me an overnight amount of funds but then the rate changes overnight I my think twice about borrowing this way. The volatility wouldn't be conducive to take the risk.

my .02

Yeah, I remember when the overnight rates went way up. It wasn’t that the market seized, as much as rates went out of the “target range”. Rates going up is a competitive market solution. The Fed stepping in to solve that problem is the equivalent of the government stepping in when the price of gasoline or bottled water goes up during an acute emergency. So essentially this is Wall St. running to government to complain (and resolve) “price gouging”.

 

[Pauls' Revere]

Yeah, I remember when the overnight rates went way up. It wasn’t that the market seized, as much as rates went out of the “target range”. Rates going up is a competitive market solution. The Fed stepping in to solve that problem is the equivalent of the government stepping in when the price of gasoline or bottled water goes up during an acute emergency. So essentially this is Wall St. running to government to complain (and resolve) “price gouging”.

Agreed, must be some volatility there in the overnight rate! Dam, can't imagine what that would look like? Yield curve?