The bank-owned online broker that brought you commission-free stock and ETF trading has ramped up the level of competition again with a new offer.
National Bank Direct Brokerage now allows clients to participate in securities lending, which means allowing their fully paid shares to be lent to other investors who want to pursue strategies like short-selling. NBDB says it will share the interest charged for borrowing stocks on a 50-50 basis with clients who authorize the use of shares in their account for lending. Fully paid means you haven’t bought your shares on margin, in other words, borrowed money to buy them.
Interest is paid monthly into your account if you participate in the securities lending program and your shares are used. Interest rates vary according to how hard it is to find a particular stock to lend out, but typically range from less than 1 per cent to between 10 and 15 per cent or more. There are no fees to participate in this program.
To qualify, you need assets of $100,000 or more in a margin or cash account. Interactive Brokers offers a similar service through its Stock Yield Enhancement Program, which is available to clients who have a margin or cash account worth more than US$50,000.
NBDB’s program is still being fine-tuned and thus has limited appeal right now. But it’s noteworthy in that it answers a question more brokers need to think about. Once you open an account at a particular brokerage, what are the perks that keep you loyal? All the players offer a platform for trading securities and some level of research tools. What else is there?
Some of the drawbacks to the NBDB lending program: participants must phone the company to get the enrolment process started, and they must call if they want to trade stocks that were lent out. You can’t just sell on a whim using the NBDB website, which means the program is best suited for buy and hold investors. On the other hand, you can request to have some holdings exempted from securities lending if you foresee selling them in the near term.
Shares lent out still appear in your brokerage account, and you still collect any dividends they pay. Best of all, there’s no effort required to participate in securities lending once you sign up. The lending takes place in the background and interest is calculated daily and paid out monthly.
Shares on loan are not covered by the Canadian Investor Protection Fund. However, Natcan Trust Co. holds collateral in the form of federal government bonds for shares lent out.
NBDB joined the trading app Wealthsimple Trade in offering zero-commission trading of stocks and exchange-traded funds last August. Securities lending is not nearly the revolutionary move that chopping commissions was, but it does show that NBDB has become one of the online brokerage business’s more innovative players.
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