Schwab Overnighted Me Their Securities Lending Fully Paid Program Package
As a follow-up to my messages from Monday (3/26), I received a UPS overnight package this morning from Charles Schwab for brochures pertaining to their "Schwab Securities Lending Fully Paid Program."
They want me to lend my FRPT shares to them and in return they'll pay me 1 1/2% on the market value of my outstanding shares while I own FRPT. I'M NOT GOING TO DO THIS BECAUSE I KNOW THEY WANT TO BORROW MY SHARES SO THEY CAN BE SHORTED.
The package came from Howie Kennedy (Director, Securities Lending at Charles Schwab in San Fran.), and contains a brochure on the Schwab Securities Lending Fully Paid Program, an Auditor's Report on Schwab's 12/31/06 Consolidated Statement of Financial Condition, and a contract for me to sign and mail back to them ASAP.
The addendum to their audited 12/31/06 Statement of Financial Condition, states their policy on securities lending, which is "client securities may be loaned temporarily to other brokers in connection with Schwab's securities lending activities. Schwab receives cash as collateral for the securities loaned. Increases in security prices may cause the market value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, Schwab may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, by monitoring the market value of securities loaned, and by requiring additional cash as collateral when necessary. The market value of Schwab's client securities pledged in securities lending transactions to other broker dealers was $1.3 billion at December 31, 2006. Additionally, Schwab borrows securities from other broker-dealers to fulfill short sales of its clients. The market value of these borrowed securities was $401 million at December 31, 2006.
I'm sure that many of you shareholders will be receiving similar brochures and contracts from your brokerages for lending your shares. My advice is DO NOT LEND YOUR SHARES. It's apparent that someone desperately wants to short FRPT, and is willing to pay for borrowing the shares he'll need to short against. If we all resolve not to lend our shares, then the short(s) will run out of legitimate avenues for shorting.
Good luck with your investing.