As I was doing my taxes this year, I noticed a surprising 1099-MISC from my Canadian brokerage. After a bit of research, I learned that this was the result of my participating in a securities lending program, where my brokerage would loan my shares out and split the fees with me.

At first, I was excited — the amount on my 1099-MISC was about 80% of what I had on my 1099-DIV. Almost doubling my dividend yield by loaning out my holdings? Sign me up. Unfortunately, the truth is not nearly so exciting.

As you can see in the screenshot above, far from “doubling my money”, I actually made $2.77 in lending out my securities. Almost every dollar on my 1099-MISC was actually a “Payment in Lieu of Dividend” — in other words, money given to me by the borrower to make up for the dividends I missed while my security was loaned out. In other words, as a result of loaning out these shares, my 1099-DIV went down, my 1099-MISC went up, and my bank account remained unchanged.

Why I’m Opting Out (The Cons)

Even though it’s very little money, it’s still “free” money, so is it worth it? For me, the answer is “no” for three main reasons.

• The Insurance Gap: While my shares are loaned out, they are not covered by CIPF insurance. CIPF insurance covers up to $1 million, per account, if your broker goes bust. Your brokerage likely holds cash collateral to cover the shares loaned out to make up for the loss of insurance, but I wouldn’t count on this cash if they’re going bankrupt.
• Tax Complexity: It isn’t a big deal, but why do I want two slips instead of one? And, in my case, because it’s a USD account, I’m getting 4 instead of two (doubling a T5 and a 1099). Plus, some dividends may be treated more favorably than payments in lieu of dividends are.
• Helping the Shorts: These shares are likely being loaned out to people shorting what I’m holding. As a long term buy and holder, I’m not interested in providing people the ammunition they need to bet against the very investments I own.

Other Considerations

There are a couple of other trade-offs that might matter for you, even though they aren’t really a concern for me.

• Loss of Voting Rights: You can’t vote in a shareholder meeting for any shares that are currently loaned out.
• DRIP Disruption: If you use automated dividend reinvestment, some brokerages don’t process a “Payment in Lieu” the same way they process a real dividend, which can break the process. Since I track my ACB manually and don’t use DRIP in my brokerage account, this wouldn’t impact me.

The Only Pro

In my opinion, the only potential reason to keep this on is if you hold “hard-to-borrow” stocks (like volatile meme stocks in the middle of a short-squeeze). In those rare cases, lending fees can skyrocket and you might decide the additional income is worth the risk of losing CIPF insurance.

In Conclusion

Take a look at your account settings and see if, like me, you are unintentionally loaning out your investments. If you want to keep doing it (because, hey, free money) go ahead, but at least you’ll be making an intentional choice and you know what you’re giving up.

To turn it off in Questrade: Log into Questrade on a desktop, go to Account Management > Securities Lending Program, and toggle it to Opt-out.

To turn it off in Wealthsimple: In the mobile app, tap the “Move” tab (the bottom icon with two arrows) > under “Automations,” tap “Stock lending.” > toggle the switch(es) to OFF.