Letztes Update: 22. November 2024
Saxo Bank’s custody account fees are already low compared to other Swiss banks and brokers, but recently you have the opportunity to eliminate them completely. Saxo is introducing a securities lending service and if you participate, you will no longer be charged any custody fees. In this article you will find out what securities lending is and what you should bear in mind.
Securities lending: What is it?
Securities lending is a financial transaction in which the owner of securities temporarily transfers them to a borrower. The borrower pays a fee to the lender and commits to returning the securities after an agreed period. In this way, the lender can generate additional income from their securities holdings without having to sell them. The borrower can use the borrowed securities to execute trading strategies such as short selling. Saxo Bank lends both stocks and ETFs.
Many ETFs and funds also lend out parts of their portfolios and thus generate income. For the iShares Core MSCI World UCITS ETF, for example, the securities lending yield last year was 0.03%. On average, securities with a volume of around 10% of the fund were lent out.
Securities lending: what you need to consider
You lose ownership of the loaned securities during the loan period. This means that the loaned securities are no longer part of the special assets and in the event of Saxo Bank’s insolvency you can only assert a monetary claim against Saxo Bank’s assets. This monetary claim is not privileged and is not subject to deposit protection.
Clients benefit from collateralization of their return claim. This collateral is provided directly by Saxo Bank and you are not exposed to the insolvency risk of a third party end-borrower.
Securities lending Saxo Bank Switzerland
Securities lending Activation
With Saxo, you can activate securities lending with just one click. With other providers, you either have to print out a document, sign it and send it in physically, or securities lending is always active and cannot be deactivated.
Saxo handles the entire lending process and pays you half of the returns. This allows you to increase the return on your portfolio. In return, the custody account fees are automatically waived. And for your entire portfolio, not just the securities on loan.
You can activate or terminate the securities lending service at any time. You will receive dividends or dividend-like payments as usual, and you can sell the shares at any time, even if they are on loan. The only downside is that you cannot exercise your voting rights at the AGM if your share is on loan at that time, but you cannot (yet) do that with shares you buy through Saxo anyway.
If you want to exclude certain securities from securities lending, you must transfer them to a separate sub-account. Of course, you must then exclude this sub-account completely from securities lending.
In the portfolio overview, you can see which securities have been lent, if any have been lent at all.
In the SaxoTraderGo app, you can see whether securities lending is activated under “Portfolio” and “Securities lending”. There you can also see whether and which securities are currently on loan. I currently have two ETFs with Saxo Bank and have activated securities lending to try them out. So far, however, none of the ETFs have been lent out, which indicates that there is currently no demand for these two ETFs.
Securities lending Collateral
Saxo acts as the counterparty for securities lending. In the event that the borrower defaults, at least 102% of the securities lent are deposited as collateral in a separate Swiss custody account. The collateral is valued daily at market value and adjusted in line with fluctuations in the value of the securities. If the value of the securities lent increases during the course of the day, the collateral is also increased at the end of the day. The borrower must provide more collateral.
Securities lending income
The additional income is transferred to your Saxo Bank clearing account at the end of each month.
However, it is also possible that no securities are lent at all because there is no demand for your shares or ETFs. In this case, however, there are also no custody account fees.
If several Saxo clients own securities that are in demand, an automated, random process is used to decide who will lend the shares or ETFs. Saxo has no influence on this.
How high are the yields?
Let’s take an example: Beyond Meat Inc. is currently in high demand among borrowers. They are prepared to pay 38.96% per year for the loan. You have USD 1,000 worth of shares in Beyond Meat Inc. in your custody account and your shares are lent out, you will receive USD 194.80 per year (half of USD 389.60 goes to Saxo Bank – other providers give nothing or a smaller share to their clients). In most cases, however, securities are not lent for an entire year. Accordingly, the annual interest rate would be calculated down to the effective period.
Conclusion securities lending Saxo Bank
The introduction of securities lending at Saxo Bank offers clients the opportunity to completely eliminate their custody fees. In addition, additional income can be generated by lending securities, thereby increasing the return on the portfolio. However, you should be aware of the risks. Saxo makes the activation and management of securities lending simple and transparent, so you always have an overview.
Transparency and disclaimer
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