Overview

Wealthsimple’s Stock Lending feature allows clients to participate in something commonly known as Fully Paid Lending (FPL). Stock Lending allows you to earn passive income on stocks you already own by lending your shares to other investors for a fee. These investors will use your shares to facilitate several trading activities such as covering their own failed trades, short selling, hedging or arbitrage.

Wealthsimple does the work to find borrowers for your stocks and you get paid if there is a match through a revenue-sharing model called Pooled Profit Sharing. This means that you will start earning income through Stock Lending as soon as there is an investor that borrows your eligible stocks. 

Income earned through Stock Lending is taxable as interest income if it's earned in a non-registered account. You'll be taxed at your marginal tax rate. 

Eligible accounts

You can participate in Stock Lending in your self-directed TFSAs and Personal (non-registered) accounts. Other Wealthsimple accounts aren't eligible for Stock Lending. Follow these steps to start participating Stock Lending. 

Payout schedule

You’ll get paid your stock lending earnings on, or shortly after the first 10 business days of the new month for the previous month’s lending activity. You can expect your earnings by the end of that day.

Benefits of Stock Lending

There are many benefits to participating in Stock Lending. These include:

• Earning passive income
  With Stock Lending, you can earn a form of income by lending out stocks that you already own.
  Note: Stock Lending can help you earn more from your portfolio, but participating does not guarantee your shares will be loaned.
  
  
• Keeping ownership of your stocks
  With Stock Lending, you do not lose economic ownership of your stocks. This means you will still be able to sell them at any time and realize gains or losses as normal.
  
  
• Keeping your assets protected with Wealthsimple
  Wealthsimple protects your assets when you participate in Stock Lending. In return for lending your stocks, Wealthsimple allocates cash collateral to the trustee account to secure the amount of the loan. We will allocate cash collateral to a Trust account equal to 100% of the market value of your loaned stocks or ETFs plus any additional cash collateral that we receive from the borrower.

• Everyone is eligible with Wealthsimple
  There is no minimum amount you need to hold in your portfolio to be eligible to participate in Stock Lending. As long as you have funds in a self-directed investing TFSA or Personal (non-registered) account with Wealthsimple, you will be able to participate in loaning your stocks.

Tradeoffs of Stock Lending

It is also important to understand the tradeoffs of Stock Lending before you agree to participate. These can include:

• Giving up your voting rights
  If you successfully lend out your shares through Stock Lending, you will temporarily be giving up your voting rights. These voting rights are given up until your shares are returned.
  
  
• Losing CIPF coverage
  The Canadian Investor Protection Fund (CIPF) does not provide coverage for stocks that are lent through Stock Lending programs. With that being said, Wealthsimple provides collateral to protect clients in the event that the shares are not returned.

Please see our Risk Disclosure Document for a more detailed description of the tradeoffs associated with Stock Lending. 

Revenue sharing and allocation

Wealthsimple will use Pooled Profit Sharing for revenue sharing and allocation. This means that every time we initiate a trade to lend out one of our clients' shares, all of our clients who have agreed to participate in Stock Lending and who own shares of that security will have their prorated portion of total inventory lent out. They will then receive the same prorated portion of revenue.

Example
Let’s say that Wealthsimple initiated a trade to lend out 300 shares of stock ABC. Below, you can see how Pooled Profit Sharing would impact different clients based on the number of shares that they owned:

More details: 

• The portion of total inventory is calculated and reallocated on a daily basis
• Revenue is calculated on a daily basis and distributed on a monthly basis
• Wealthsimple will post daily loan confirmations to advise you of your loaned positions

High Demand  Loan vs. Low Demand Loan

High Demand Loans: WSII will pay clients participating in WSII’s stock lending program an amount equal to 50% of the lending fee WSII received from the borrower for loaning the client’s securities. These loans will be reflected in clients’ loan confirmation with a loan rate over 0%.

Low Demand Loans: In high interest rate environments, you may benefit more from having your securities lent as part of a low demand loan, but WSII would prefer a high demand loan. In these circumstances, WSII pays the borrower to borrow the securities. WSII will pay you an amount equal to 10% of the net revenue WSII earns for loaning your securities. The net revenue earned on low demand loans will be based on variable overnight interest rate less the fee paid to the borrower. These loans will be reflected in your loan confirmation with a loan rate of 0%.

Fees

There are no fees to participate in Stock Lending with Wealthsimple. Instead, you will earn income from your loaned shares.

Example
High Demand Loan
Let’s say you have a $12,000 portfolio with Wealthsimple, and you agree to participate in Stock Lending. If you were to loan all your shares at a lending rate of 8%, you could expect the following:

• The total amount of earnings that your stocks will generate in one month will be $80.00 ($12,000 * (8%) / 12 months)
• The amount of revenue allocated to Wealthsimple would be $40.00
• The amount of revenue that you would earn that month would be $40.00

Low Demand Loan
Let’s say you have a $12,000 portfolio with Wealthsimple, and you agree to participate in Stock Lending. If you were to loan all your shares at a lending rate of -3% and assuming the overnight rate is 5%, you could expect the following:

• The total amount of earnings that your stocks will generate in one month will be $20.00 ($12,000 * (5% - 3%) / 12 months)
• The amount of revenue allocated to Wealthsimple would be $18.00 (90% of net revenue)
• The amount of revenue that you would earn that month would be $2.00 (10% of net revenue)

Eligible securities

Eligible securities: include securities that are listed on an exchange. Specifically for Canadian listed equity securities, eligible shares are any that also meet at least one of the following criteria:

• Stocks that have a 6-month average volume weighted average price (VWAP) greater than or equal to $2.00

• Stocks that have a 6-month average daily trading volume greater than or equal to 100,000 shares

• Stocks that have a 6-month average free-float market capitalization greater than or equal to $200 million

Ineligible securities: We might not loan all the securities in your account but this may change as our stock lending program evolves. Currently, we do not loan out:

• Securities that do not have sufficient demand to lend (this is an ever-changing dynamic that is market-driven)
• Any fractional shares
• Securities that are not earnings accretive

Start participating in Stock Lending

You must review and sign an agreement below you can participate in Stock Lending. To enable Stock Lending:

1. Log in to your Wealthsimple mobile app
2. Tap the Move tab at the bottom of the screen
3. Choose Automations from the options
4. Tap Stock Lending
5. Follow the prompts to learn about Stock Lending
6. Review and sign the agreement
7. Tap Confirm to enable Stock Lending
8. Choose which account(s) you'd like to enable Stock Lending in

Note: You can only enable Stock Lending in self-directed TFSAs and Personal (non-registered) accounts.

Stop participating in Stock Lending

If you previously agreed to participate in Stock Lending and no longer wish to, follow these steps:

1. Check that you're on the latest version of the Wealthsimple app 
2. Log in to your Wealthsimple mobile app
3. From the Home tab, tap the Profile icon in the top right corner
4. Tap the Settings (gear) icon
5. Tap Automations
6. Choose Stock Lending from the options
7. Toggle which account(s) you want to opt out of

To exclude specific securities from Stock Lending, or to recall your shares in order to participate in voting, please contact our support team. Our team will be able to help you exclude securities on an individual basis. 

Similarly, you can set a percentage of shares that you do not want to lend out by contacting our support team.

View your loan confirmations and details

Wealthsimple provides loan confirmations for each of your eligible shares that have been loaned through Stock Lending. To view your loan confirmations, follow these steps: 

1. Log in to your Wealthsimple mobile app
2. From the Home tab, tap the Profile icon in the top right corner
3. Tap the Settings (gear) icon
4. Tap Automations
5. Choose Stock Lending from the options
6. Tap View details on the account(s) you're interested in
7. Select the date(s) you want to view
8. Select View lending confirmation

Receiving dividends while participating in Stock Lending