No. of Recommendations: 4
In addition to what Ray said, if this is in a taxable account, also consider the effect on dividend taxation. If you own a stock that pays qualified dividends (and have met the holding requirements), the dividend is taxed at a favored rate, something like 7-17% lower than your ordinary income rate. However, if the stock is loaned out when the dividend is paid, you receive the cash equivalent of the dividend, but it's *not* a dividend, it's cash-in-lieu of dividend and is taxed at your ordinary income rate. That tax difference could easily be more than you actually earn for lending the shares. And of course what you earn from lending is taxed at your ordinary rate as well.
Of course if this is happening in a tax-advantaged account, that's all irrelevant, but in a taxable account it's worth considering (and although this is for the US, it wouldn't surprise me if similar things happen elsewhere as well, so worth at least looking into, no matter where you live).
Brian
