Friday, October 15, 2010

Lending of scrips deposited in CDP

I'm once again interested in lending my scrips deposited in CDP (central depository) to earn some interest. I checked the borrowing rates, it's 6%. The lending rate is however lower at 4%. I suppose CDP will take the cut for being the middleman. I'm interested partly because I read that there are new rulings by the new chief at SGX regarding borrowing/lending of scrips, but I didn't read too closely. Something like making it easier for retailers to borrow scrips for shorting. Currently there are like 600+ stocks you can borrow for the the purpose of shorting.

After doing some casual research, I realized why I didn't sign up the last time when I was interested. You can only lend out eligible securities in the stocks held by CDP. Eligible securities is defined as securities:

a) where price is less than S$1, fifty thousand (50,000) or more units; and

b) Where price is S$1 or more, S$50,000 divided by price rounded up to the next units.

In any one of the Securities found in Appendix A of this circular.

That's quite a lot to begin with. I looked though my holdings and I don't seem to have so many lots of the same counter, so I dropped the idea. But for anyone of you who had a lot of scrips stored in the CDP, you can make them work a little harder by lending it out to anyone who wants to borrow it at a rate of 4% per year.

Looks as easy as that. Click a few buttons and get money sent to you

The fees for the lending of scrips can be calculated by the following formula:

Lending Fee = Rate % x Loan Value x Days / 365

Where Rate % = Prevailing lending rate
Loan Value = No. of shares x share closing price at end of each day
Days = Loan duration

I'll quote an example given by CDP for the purpose of illustrating the application of the formula. I certainly have no use for it now, but in the future, who knows? I'll just put it here for my future reference.

If the loaned securities are 10,000 XYZ shares and the lending rate is 4%:

Start date of Loan : 1/10/2001 (Effective date)

Return date of Loan : 4/10/2001 (Expiry date)

Closing price on 1/10/2001 = S$10.00 Market Value of Loaned Securities = 10,000 x S$10.00 = S$100,000

Closing price on 2/10/2001 = S$10.20 Market Value of Loaned Securities = 10,000 x S$10.20 = S$102,000

Closing price on 3/10/2001 = S$10.40 Market Value of Loaned Securities = 10,000 x S$10.40 = S$104,000

Daily fee computation

Fee accrued on 1/10/2001 = 4% x S$100,000/365 = S$10.96

Fee accrued on 2/10/2001 = 4% x S$102,000/365 = S$11.18

Fee accrued on 3/10/2001 = 4% x S$104,000/365 = S$11.40

Lending fee = S$10.96 + S$11.18 + S$11.40 = S$33.54


Createwealth8888 said...

Do you still entitled to collect dividends if the shares are loaned out?

Lending pple shares to short it against your own holding and making your lose "value" faster?

Not sure emotionally will feel good or not looking at falling stock value?

Anonymous said...

what website and number to call ?
lend already still have dividends ?

chan :)

Sanye said...

Thanks for sharing this info. It may be interesting to get some extra $$ since I am not selling the shares anytime soon.

la papillion said...

Hi bro8888,

Yes, you're still entitled to rights, bonuses and dividends while your shares are lent.

Regarding the problem about lending pple to short your depends on your horizon I suppose. If you intend to hold it long without doing anything to it, it doesn't matter if there's short term selling on it. You can specify exactly how much of each shares and what shares you want to lend out, so don't think it's a problem.

la papillion said...

Hi Chan,

Check out the links posted in the website. There are forms to apply and to post to CDP.

la papillion said...

Hi Sanye,

Np :) If you're not selling, I think it's a good way to get some more returns. Just apply if you met the eligibility conditions, no harm right?

Musicwhiz said...

I've placed my Kingsmen and SIAEC as eligible securities for lending. So far, no one's borrowed them. :)

Createwealth8888 said...

Who want to short Kingsmen and SIAEC?

Musicwhiz said...

It's not my problem if someone wants to short Kingsmen and/or SIAEC. I'd be happy to receive the 4% lending fee, as well as any dividends accruing to me...