How to earn more on your SGX stocks through securities lending
17 Sep 2022
Through securities lending on the SGX Securities Borrowing and Lending (SBL) programme, you can earn a fee for lending out your shares temporarily.
What you'll learn
- What is securities lending?
- How does securities lending work?
- How much can you earn with securities lending?
- What are the benefits and disadvantages of securities lending?
- Securities lending through the SGX Securities Borrowing and Lending (SBL) pool allows you to earn an extra yield on your SGX stocks.
- Through securities lending, you can earn a fee for lending out your shares temporarily.
- You'd also be able to enjoy the economic benefits of owning the stock, including collecting dividends.
- However, you'd lose your voting rights after lending out your shares.
Do you own Singapore listed shares through a CDP account?
Here’s another way to enhance your yield and earn extra pocket money to buy that Macdonald’s Happy Meal.
Securities lending through the SGX Securities Borrowing and Lending (SBL) Pool allows you to earn an extra yield on your SGX stocks.
What is securities lending?
SBL involves the temporary transfer of securities, together with the transfer of title and associated rights and privileges, from a lender to a borrower.
Under the SGX Securities Lending Programme, CDP lends out securities to a borrower, and simultaneously borrows equivalent securities from a lender.
How does securities lending work?
As a shareholder, you are essentially lending your shares parked under CDP temporarily to a borrower in exchange for a lending fee.
In exchange, you will temporarily transfer of title and associated rights and privileges to the borrowers.
In short, you lend out your shares temporarily and collect a fee because nothing is for free in this world.
There is a demand from borrowers because entities and/or individuals engage in activities called ‘short selling’, which involves selling the stock first, betting that buying back at a lower price to make a profit.
How much can you earn with securities lending?
Eligible shares and annual lending fees can be found here
Lending fees are calculated on the day the shares and incurred daily.
Lending Fee = Rate % x Loan Value x Days / 365
Rate % = Prevailing lending rate
Loan Value = No. of shares x share closing price at end of each day
Days = Loan duration
What are the benefits of securities lending?
#1 - Earning an extra lending fee
Securities lending provides shareholders with an avenue to earn an additional return.
Take Broadway Industrial in this case, as a lender, you will earn a lending fee of 4.2% per annum if your shares get borrowed.
#2 - You still get to collect all dividends and economic benefits
While lending out the shares, you are still entitled to all dividends declared by the company.
Dividends go to you and not the borrower. So you are not giving up dividends in exchange for the lending fee.
In fact, you get dividends AND the lending fees!
#3 - You can pick and choose which securities to lend out
You can exclude certain securities they would not like to lend via the programme.
#4 - You can sell your shares on loan anytime
You are entitled to sell your shares and there is no need to inform CDP about your sale
What are the disadvantages of securities lending?
While there are no apparent risks from the SBL programme, there are some things you should take note of
#1 - No voting rights and cannot attend AGMs
As legal ownership is temporarily transferred, your voting rights and ability to attend AGMs will be temporarily forfeited as well. This means that you would not be able to go to the AGMs for the buffet ☹
#2 – You may not earn the lending fee immediately after signing up
You will only start earning the lending fee once your shares are utilised. The CDP will inform you by post when that happens -_-
#3 – Payment may take longer than usual
In the event of a borrower cannot return the shares that you have borrowed, CDP will borrow the shares from another lender to return to you.
However, it could take some time for CDP to find the shares to return to you. If you are selling the shares (the day of sale being T), the worst case is that CDP will return the cash of the same amount of your sell trade on T+8,
In other words, there is no principal loss but you could be late in receiving the cash for selling your shares.
Should you take up securities lending for your SGX stocks?
Virtually all investors who have purchased eligible securities through a CDP account can consider securities lending.
It is a good way to earn that extra income while holding shares and collecting dividends.
In a scenario that you hold that shares for 5 years, you could be potentially earning another stream of lending fees for 5 years.
The good news is that there is virtually no credit or counterparty risk, while still retaining the right to dividends and corporate actions.
Juice up your total returns on your portfolio with this programme!
Take the next step
Sign up for the securities lending programme using the application form here.
CDP will process your application within 2 business days from receipt of the application form.