Personal Finance & Money Asked on December 8, 2020
I read in an email from Fidelity regarding their "Fidelity’s Fully Paid Lending Program":
Keep in mind that while your securities are on loan, there is the potential for downward pressure on the price of loaned securities due to short selling; there are differences in the way any dividends received are taxed and in proxy voting rights; and Securities Investor Protection Corporation (SIPC) coverage does not apply.
Why would I care about "potential for downward pressure on the price of loaned securities due to short selling" when loaning securities? Is that because it increases the risk of counterparty default?
If you own a stock, do you want the price to go up or to drop? Downward pressure isn't your friend.
Secondarily, if your shares are loaned out to a short seller and he is short on the ex-div date, the buyer of the borrowed shares receives the dividend. The share lender (you) receives payment-in-lieu (PIL) from the short seller which does not qualify for the qualified dividend rate and is taxed at ordinary income rates.
Correct answer by Bob Baerker on December 8, 2020
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