How It Works
When you use a stock lending service, the stock you hold is lent to a securities firm, and that stock is used as a source of shares that the securities firm in turn lends to investors carrying out short sales, among other purposes. While the stock is on loan, the investor receives a lending fee based on the number of shares held.
Points of Caution
Because the registered ownership of the stock transfers to the securities firm while it is on loan, dividends are adjusted and paid in cash as a "dividend equivalent amount," and the treatment of shareholder benefits and voting rights can differ from when the stock is held normally. Since handling varies by securities firm, it is important to check the rules before using the service. It should also be noted that lending fee levels fluctuate, and past performance does not guarantee future rates.