Here's How to Earn That Extra Money by Lending Your Singapore Shares
Enter the Singapore Exchange’s Securities Borrowing and Lending (SBL) programme…
TL;DR: What Investors Should Know About SGX’s Securities Borrowing and Lending (SBL) Programme
Here’s a summary of the SGX SBL programme:
- The programme allows you to lend your shares to a borrower
- In turn, you will receive a lending fee (exact fee for a particular stock can be found on SGX’s website)
- There are specific criteria to meet for your holdings to be added to the lending pool
- Even if your shares are lent out, you will still be eligible for the economic benefits of share ownership (such as bonuses, rights issues, and dividends)
- One downside to SBL is that when your shares are on loan, the legal ownership is temporarily transferred to the borrower and therefore, you will not be allowed to attend the company’s annual general meeting, for instance
What Is the Securities Borrowing and Lending (SBL) Programme About?
According to SGX’s website, the SBL is a programme that “involves the temporary transfer of securities, together with the transfer of title and associated rights and privileges, from a lender to a borrower”.
What this means is that you can lend your shares that’s parked under CDP to someone else. That person you are lending to may be trying to short the stock.
When someone shorts a stock, he/she is selling the stock first, hoping to profit by buying it back at a lower price at a later date.
If your shares are held in your CDP account, you can participate in SBL by submitting this form. Once approved, you can participate as a lender and CDP will let you know if someone borrows your stock.
To be added to the lending pool, your holdings must meet the following criteria:
- For shares priced $1 or below, you must own a minimum of 10,000 units; and
- For shares priced more than $1, you must own a minimum of $10,000 in value.
Why Lend Your Shares?
The main benefit of lending your shares is that you will be paid a lending fee, which can potentially enhance the yield of your stock portfolio.
Previously, the lending fee rate was fixed at 4% per year, while the borrowing fee rate stood at 6%.
Since 2 December 2019, the borrowing rates for Straits Times Index stocks, real estate investment trusts (REITs), and business trusts are at 0.5% per annum while the rest of securities stand at 4% (rates will be reviewed periodically).
The lenders’ fees are calculated based on 70% of the borrowing fee.
The formula to calculate the lending fee is:
Lending Fee = Rate % x Loan Value x Days / 365
Where Rate % = Prevailing lending rate
Loan Value = Number of shares x closing price for the day
Days = Loan duration
You can find out the exact lending and borrowing rates from SGX’s website here.
For example, if you own shares in AEM Holdings Ltd (SGX: AWX), you can lend it out and earn 4.2% per annum.
Other benefits of the SBL programme include:
- No participation cost (it’s free to register as a lender)
- Ability to sell your shares anytime (no lock-in period)
- Being still eligible for economic benefits of share ownership (such as bonuses, rights issues, and dividends)
What Are the Risks to SBL?
When your shares are on loan, the legal ownership is temporarily transferred to the borrower until the shares are returned to you.
Therefore, you won’t have voting rights to the shares and would also not be allowed to attend annual general meetings (AGMs) as your name won’t be registered in the company register as a shareholder.
Another downside is that if a borrower fails to return the loaned shares to you by the due date, you may receive your loaned shares or sales proceeds late when you have indicated the intention to terminate the loan, either by recalling or selling the loaned shares.
You can read the full explanation of risks under “Securities Borrowing and Lending” of the CDP frequency asked questions (FAQs).
A Way To Earn That Extra Income
In my opinion, the SBL is a great way to earn some extra money from our stock holdings.
Even when we lend out our shares, we will still receive dividends and would be entitled to the other corporate actions.
However, one major downside to note is that we will be giving up our voting rights as a shareholder when our shares are being lent out.
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Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. Readers should always do their own due diligence and consider their financial goals before investing in any stock.