EasyEquities just updated their Terms & Conditions to allow them to take ownership of your securities and transfer them out of your account and lend it to someone else for a fee.
Here's what it means for you - including the rights you have in this situation [Thread] #BankerX
Here's what it means for you - including the rights you have in this situation [Thread] #BankerX
EE sent out a mail outlining the changes to their T&Cs. The fine print is extremely dry but it's REALLY important. Main change is an insertion of Clause 36 - securities lending
In short, you agree to give up ownership of your shares to EE for up to a year (for a fee).
In short, you agree to give up ownership of your shares to EE for up to a year (for a fee).
What is securities lending?
Securities lending is simply when you allow someone to borrow your securities & they pay you. Think of your stock as a book. You're lending someone your book and they pay you to borrow it. They agree to return the book within 12 months.
Securities lending is simply when you allow someone to borrow your securities & they pay you. Think of your stock as a book. You're lending someone your book and they pay you to borrow it. They agree to return the book within 12 months.
Is this even normal?
Securities lending is widely used by pension fund and large institutions who are long term holders of stocks. They also have a large library of books and prefer to earn cash by lending them out instead of not being used in their libraries.
Securities lending is widely used by pension fund and large institutions who are long term holders of stocks. They also have a large library of books and prefer to earn cash by lending them out instead of not being used in their libraries.
How does securities lending actually work?
- You let the broker (EE) take ownership of the book
- The broker finds someone who wants to use the book
- The broker gets paid a fee for connecting the two of you
- You get some of that fee
The broker gets paid to be a matchmaker.
- You let the broker (EE) take ownership of the book
- The broker finds someone who wants to use the book
- The broker gets paid a fee for connecting the two of you
- You get some of that fee
The broker gets paid to be a matchmaker.
What if I lose all my money? What if the book doesn't come back? What if they smoke the pages?
Great question.
The person borrowing the book needs to put cash into a locked up account (fancy term is collateral). This is your protection. The collateral can be both cash & equity.
Great question.
The person borrowing the book needs to put cash into a locked up account (fancy term is collateral). This is your protection. The collateral can be both cash & equity.
The house always wins
The broker is a savage & doesn't just make money from lending out your stock. They can also use the money in your collateral account to invest in bonds or fixed income instruments to make even more money.
You don't get to enjoy the benefit of this return.
The broker is a savage & doesn't just make money from lending out your stock. They can also use the money in your collateral account to invest in bonds or fixed income instruments to make even more money.
You don't get to enjoy the benefit of this return.
What happens if the broker uses my collateral to go to gamble in Vegas?
In SA the entity governing securities lending is SASLA (sasla.co.za/index.php/en/d…).
Have brokers have lost their clients money by investing collateral funds into risky assets? Yes.
forbes.com/forbes/2009/06…
In SA the entity governing securities lending is SASLA (sasla.co.za/index.php/en/d…).
Have brokers have lost their clients money by investing collateral funds into risky assets? Yes.
forbes.com/forbes/2009/06…
Why does someone borrow my stock?
Simple - they want to sell it
It's called short selling
Short-selling is offloading borrowed security intending to repurchase at a lower price to cover your position and offset the costs of prime brokerage. WTF?!
Okay, here's a simple example:
Simple - they want to sell it
It's called short selling
Short-selling is offloading borrowed security intending to repurchase at a lower price to cover your position and offset the costs of prime brokerage. WTF?!
Okay, here's a simple example:
KK borrows Tesla stock from you
He pays you $30 to borrow it for the month
KK sells the stock at $1,650, now he has $1,650 in his pocket but still owes you a stock
Tesla falls to $1,550
KK goes and buys it back at $1,550 and gives your stock back
KK makes 1650 - 1550 - 30 = $70
He pays you $30 to borrow it for the month
KK sells the stock at $1,650, now he has $1,650 in his pocket but still owes you a stock
Tesla falls to $1,550
KK goes and buys it back at $1,550 and gives your stock back
KK makes 1650 - 1550 - 30 = $70
But what if the stock price did not fall?
What if Tesla stock goes from $1650 to $1750?
This is called a short squeeze. Every trader will tell you this is the WORST place to be. Your chest tightens up. People have lost $23bn betting against Tesla.
telegraph.co.uk/technology/202…
What if Tesla stock goes from $1650 to $1750?
This is called a short squeeze. Every trader will tell you this is the WORST place to be. Your chest tightens up. People have lost $23bn betting against Tesla.
telegraph.co.uk/technology/202…
A real-time dynamic link between collateral funding & an accounts funding margin should move in real time ensuring negative P&L is backed by adequate reserve capital
Simply - if the person borrowing your stock is losing money, they need to be healthy enough to return your stock.
Simply - if the person borrowing your stock is losing money, they need to be healthy enough to return your stock.
Is securities lending free from risk? No
Section 36.7 in the EE disclaimer outlines these.
Section 36.7 in the EE disclaimer outlines these.
What about dividends & voting rights?
They cancel the stock from being lent out pay you your dividend &/ or let you take part in corporate actions.
They cancel the stock from being lent out pay you your dividend &/ or let you take part in corporate actions.
"There is no mention of how much they will pay to borrow my stock. I don't like the idea of handing over the keys to the Porsche. I don't want to be part of this"
To opt out - you have to write to EE telling them you want no part in this otherwise you are automatically included.
To opt out - you have to write to EE telling them you want no part in this otherwise you are automatically included.
Here's a link to a guide on securities lending:
Introduction to Securities Lending 4th edition. Short selling, prime brokerage, repos, arbitrage & margin calls make for great Tinder convos.
sasla.co.za/index.php/en/d…
Link to EE T&Cs:
support.easyequities.co.za/support/soluti…
Introduction to Securities Lending 4th edition. Short selling, prime brokerage, repos, arbitrage & margin calls make for great Tinder convos.
sasla.co.za/index.php/en/d…
Link to EE T&Cs:
support.easyequities.co.za/support/soluti…
Shout-out for making it to the end! #BankerX
