What is the Securities Lending Income Program?

Clearing firms commonly lend stocks to other financial institutions, through the securities lending market, as a means to facilitate short selling, meet collateral requirements, and other settlement purposes. The Securities Lending Income Program provides you with the opportunity to earn extra income on fully paid stocks that you hold which are completely paid for and are not being used as collateral for other purpose. This program allows you to lend certain fully paid stocks to Firstrade’s clearing firm, Apex Clearing. In return, you will earn daily interest based on an annualized rate with interest paid out to you on a monthly basis.

Daily Interest Earned= Number of Shares on Loan *Stock Price* Annualized Interest Rate/360*15%.

For example, if you hold 3,000 shares of XYZ in your account, the stock price of XYZ is $150 and the interest rate is 10%. If you have participated in the Securities Lending Income Program, we will automatically lend your shares of stocks according to the demand of the market. The total interest from lending these shares will be 3,000*150*10%/360=$125. You will receive about 15% of the total interest, so $18.75 per day.

Can I select which stocks to lend?

No. Once you are enrolled, Apex Clearing will borrow shares of in-demand stocks from your portfolio as needed. There is no guarantee that your fully-paid shares will be loaned out and loans may be terminated at any time by Apex Clearing.

Can I see loaned stocks in my account?

Yes. Any stocks on loan will be visible in your account on the Positions page with an “L” notation.

Are there trading restrictions?

There are no trading restrictions on stocks that are lent out. You can sell your stocks at any time, just as you would if they weren’t on loan. However, selling of stocks on loan will terminate the loan.

Will I receive dividend payments on loaned shares?

While you do not receive dividend payments directly on the stocks that are on loan, you will receive Payment in Lieu equal to the value of dividends paid on loaned shares. These payments will be taxed at your marginal tax rate rather than the prevailing dividend tax rate.

How are earnings from loan interest taxed?

In general, earnings from loan interest are taxed as ordinary income rates, just like wages. The loan income will be accrued daily and credited within fifteen (15) business days following the last business day of the calendar month.

Will I retain voting rights on loaned stocks?

No. You will not have the voting rights on loaned stocks.

Will I receive collateral for stocks on loan?

Yes. Although the loaned securities are not eligible for SIPC protection, a cash collateral equal to the dollar amount of the stocks borrowed will be deposited on your behalf into a reserve account held by Apex Clearing. The collateral is adjusted daily on a mark-to-market basis. It is calculated by multiplying the previous closing price of the security by 102% (rounding it up to the nearest dollar), then multiply by the number of shares of stock on loan.

For example: If you loaned 10,000 shares of ABC stock and the closing price of ABC is $25, the mark-to-market calculation would be $25 X 1.02 = $26.25, then round it up to the nearest dollar = $26 X 10,000 = $260,000.

$260,000 cash collateral will be held by Apex Clearing for continual mark-to-market adjustments.

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