I’m on WealthSimple, and they’ve offered stock lending as a feature. According to the app, this leaves me with complete control of the stock, including voting rights, selling options and everything. Obviously though, people wouldn’t just pay to borrow a stock from the goodness of their hearts, so how does it actually work? I’ve seen conflicting information regarding dividend payments… Is that how the borrower earns their money? If so, does that mean they take all the dividend, or just a share based on how long they borrowed?
Thanks in advance!
In: Economics
Borrower takes your stock and agrees to replace it if you need it for some reason (usually to sell it). They also agree to make up any dividend payments or other cash flows the stock would generate while they have it.
Borrower then sells the stock. Let’s say they sell it for $50 per share today for an example.
The borrower makes money by buying it back later at a lower price. They get to keep the $50/share they sold it for so if they can buy it back for $35 a share in 6 months they can return it to you and keep $15/share as profit (less the interest they pay you and your broker and any dividends you got over the 6 months).
You don’t need the shares to sell options (your broker knows the borrower is good for them if you need them back to settle your options).
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