Fully Paid for Securities Lending

What is Fully Paid Securities Lending?**

Fully Paid Securities Lending (FPSL) is a practice in which financial firms, such as DriveWealth, lend securities to other financial institutions. The lending and borrowing of securities allow financial firms to diversify their investment strategies and meet regulatory requirements. The lending of securities plays a vital role in short selling, hedging, arbitrage, and borrowing. In all scenarios, the main benefit of securities lending is the earning of income in the form of an accrued rebate on a monthly basis.

Click here to read more about FPSL for Omnibus partners.

Click here to read more about FPSL for Full-disclosed partners.

Please contact your Introducing Firm for more information concerning eligibility.



How does FPSL work?

New customers are able to opt-in to the securities lending program when signing the Account Onboarding Client Agreement.

Existing customers will receive an email request to opt-in to the securities lending program
with a “Click to Consent” button (or method of choice) in order to participate. The email will
include the necessary disclosures available through our disclosure widget

A customer’s positions will be deemed lendable once they accept the Fully Paid Securities
Lending (FPSL) Terms and Conditions. Lendability does not guarantee marketability. The
actual lending of securities depends on a multitude of factors such as liquidity, volatility,
and demand, which may not exist for certain securities

Note: All customer statement backers or disclosure pages will include FPSL disclosures, even for
customers who do not opt-in to participate.**

Note: Rebates (interest) is accrued daily (actual / 360 basis) and deposited into client accounts on the second week of the following month. **


If a customer has received an accrued rebate (entry type SLIP), they will see:

  • A page with one line item titled, “Securities Lending Rebate,” with the amount listed
  • Activity related to positions out on loan, including:
    • The date in which the positions were out on loan
    • How much of their positions were on loan
    • The accrued rebate for that date
    • The collateral associated with that position

General knowledge points

SIPC coverage

  • Positions loaned out by customers are no longer SIPC insured
  • Collateral will be held for the customers in a custodial account at a third-party bank

Voting rights, proxy, prospectus

  • If a position is out on loan during the proxy or prospectus timeline, the borrower will receive
    the proxy and prospectus information
  • Voting rights are forfeited to the borrower during the life of the loan

Dividends

  • Dividends are still received and paid out to the end customer, but in the form of a
    Manufactured Dividend (DIVM)
  • Initially the dividend is received by the borrower, but is remitted back to DriveWealth to be
    credited to the lender
  • For U.S. Citizens, dividends paid out as a DIVM are taxed at the investor’s marginal tax rate
    and not the preferred dividend rate

Possible risks

  • There is no guarantee that your securities will be lent or that there is a market to lend them
  • The type of securities that may be attractive to the market are “hard-to-borrow” securities
    and as a result, your securities may be lent to borrowers engaged in short selling those
    securities
  • Because you are holding your securities “long,” the use of lent securities to facilitate short
    selling could put downward pressure on the price of your securities

Partner Requirements

To begin taking advantage of the fully paid for securities lending offering, Partners are required to take the following actions:

  • Work with DriveWealth Account Manager, and Sales representative to opt-in and sign a the required contract addendum
  • Meet with the Software Delivery team to understand API and UI changes required and schedule time for official integration and roll out

🚧

Customers must either be a CASH or non-leverage MARGIN account to be eligible for FPSL. Leverage MARGIN accounts will not be eligible for FPSL


Required API Changes

General flow of requests and roadblocks required to be completed in order to fully enable FPSL

StepRequirement
Determine if customers country of residence is eligible for FPSLA new flag has been added to the GET /countries endpoint that will dictate eligibility of FPSL
Customer must agree to FPSL agreementDisplay agreement in UI, and include FPSL document object in POST or PATCH /user request
FPSL flag must be added to accountOnce user is created and disclosure added for FPSL set to true, Partner must set the same flag to true on the account through a POST or PATCH /accounts request

The primary required API changes to participate in FPSL are focused on customer onboarding and impact the following endpoints:

EndpointDescription
POST /back-office/usersRequest to add required disclosure for FPSL
POST /back-office/accountsRequest to add FPSL account object
PATCH /back-office/usersRequest to update current FPSL disclosure state for new / existing customers
PATCH /back-office/accountsRequest to update FPSL account flag on new / existing customers
GET /back-office/countriesRequest to get back details if customers country is eligible to participate in FPSL

POST /back-office/users

During the onboarding process customers must be displayed the fully paid for securities lending agreement and disclosure. When making the POST /users request, ensure to include the following disclosure document object

curl --request POST \
     --url https://bo-api.drivewealth.io/back-office/users \
     --header 'Accept: application/json' \
     --header 'Content-Type: application/json' \
     --data '
{
     "userType": "string",
     "wlpID": "string",
     "parentIBID": "string",
     "metadata": "string"
     "documents" : [
             {
            "type": "FPSL_DISCLOSURE",
            "data": {
                "fpslAgreement": true
            }
        }
       ]
}
'

PATCH /back-office/users

For existing customers, or those that were originally created with the fpslAgreement flag set to false, the following PATCH request is required to move on to the next step.

curl --request PATCH \
     --url https://bo-api.drivewealth.io/back-office/users/{userID} \
     --header 'Accept: application/json' \
     --header 'Content-Type: application/json' \
     --data '
{
    "documents": [
        {
            "type": "FPSL_DISCLOSURE",
            "data": {
                "fpslAgreement": true
            }
        }
    ]
}
'

POST /back-office/accounts

Once disclosure on the user record has been marked as true, the FPSL can then be added to the account through the following request

curl --request POST \
     --url https://bo-api.drivewealth.io/back-office/accounts \
     --header 'Accept: application/json' \
     --header 'Content-Type: application/json' \
     --data '
 {
        "userID": "25dd2bb7-8611-4fc8-94a7-62d1a1a1a3a5",
          "accountType": "LIVE",
        "accountManagementType": "SELF",
          "tradingType": "CASH",
        "fpslEnrolled":true
 }
'

PATCH /back-office/accounts

Once disclosure on the user record has been marked as true, the FPSL can then be added to the account through the following request

curl --request PATCH \
     --url https://bo-api.drivewealth.io/back-office/accounts/{accountID} \
     --header 'Accept: application/json' \
     --header 'Content-Type: application/json' \
     --data '
 {
        "fpslEnrolled": true    <-- false if opting out
 }
'

📘

A note will be added to user notes every time an account opts in or opts out. Above mentioned fields will be included in accounts.created and accounts.updated events.

Dividend transaction type

If a customer has a position that is out on loan on the ex-date, the borrow will receive the dividend and remit the funds back to DriveWealth. Should a customer have a position that is out on loan the dividends are still received and paid out to the end customer, but in the form of a Manufactured Dividend (DIVM). If utilizing the transactions.created the finTranTypeID is going to be returned as DIVM instead of DIV.

SLIP transaction type

On a monthly basis, clients will have the accrued interest deposited into their accounts in the form of a Security Lending Interest Payment (SLIP) If utilizing the transactions.created the finTranTypeID is going to be returned as SLIP.